Lump-sum investing in a 401(k), where larger contributions are made early, can enhance growth potential by maximizing time in the market, as indicated by Vanguard’s 2023 research. However, before making substantial early contributions, investors must understand whether their plan includes a true-up feature, which ensures they receive the full employer match. In 2023, about 67% of plans with matching contributions offered this feature. Without a true-up, clients may “leave money on the table” by maxing out their contributions too early, missing out on additional matching funds. For instance, if a 401(k) plan has a 5% match without a true-up and a participant maxes out contributions early, they may forfeit significant matching funds, potentially missing out on around $3,800 under specific scenarios. It’s crucial for participants to review their 401(k) summary plan description for key details about their accounts. Despite the benefits, many employees struggle to max out their contributions due to various financial priorities, with only about 14% managing to do so in 2023, as highlighted in Vanguard’s 2024 “How America Saves” report.
