401k retirement plan True Up Feature - YouTube

today is Q&A Tuesday and today we're gonna talk about the 401k and a special

feature that might help you save the most possible and get the most matching

contribution. So today's question comes from Mark and Mark asks are there any

drawbacks to maxing out the 401k in the beginning of the year now it doesn't

matter if you're a delayed saver you make changes to your 401k or want to

save a ton of money it actually doesn't matter because this could affect you and

you might be missing out on free money so you're definitely gonna want to watch

this if you have a 401k and it has matching contributions but before we do

if this is your first time at our channel or you haven't subscribed click

on the subscribe button at the bottom my name is Travis Sickle CERTIFIED FINANCIAL PLANNER with Sickle Hunter Financial Advisors.

so even if you're contributing the match amount the percentage you actually might be missing

out on the match because you might be doing it wrong and there's a couple of

ways or a couple things that you need to look at that I'm gonna point out today

but before we do that let's get into just the general contributions of the

401k so you know where you are and you know what the max contribution you could

put in now there are some people out there that think the max contribution is

only up to the match and that's not true so the 401k for 2019 is a maximum

contribution of $19,000 now if you're 50 or older you can do an additional $6,000

now you want to key in on the matching contribution because that is the free

money that you want to make sure that you're at least getting that portion to

it but just because you are contributing the same amount so let's say that it's a

6% match or a 4% match and you're putting that 4% or 6% then you should be

getting 4 to 6 percent but not always so how is that even possible if

you're putting in 4 percent or 6 percent and you don't get the full 4

or 6 percent match so let me start with an example so this is going to be

somebody who earns$52,000 a year and we'll have them

contributing after six months because they just got

this job maybe January 1st again for easy math and they want to wait for

whatever reason maybe you want to just get situated you want to make sure you

can pay your bills you're really excited about saving but you just want to get

things situated before you start those contributions so you wait six months

again for easy math so let's say you make $52,000 a year so that's $1,000 a

week or $2,000 every other week so that would be 26 pay periods for the year so

after six months that means we would have thirteen payments left to make so

it'd be two thousand dollars per paycheck of that two thousand dollars

we're gonna contribute eight percent now remember the match is four percent so

we're gonna say hey I want to contribute the full amount for the year so I'm

gonna double my contribution so that's eight percent for the rest of the year

so that means each paycheck we would save a hundred and sixty dollars because

that's eight percent of our two thousand dollars so that's gonna be a hundred and

sixty dollars multiply that by six months or the thirteen pay periods that

are left and that's going to equal a total contribution of two thousand and

eighty dollars now when you're making those contributions it's done on a per

pay period or per paycheck period basis so what that means is you're gonna get

eighty dollars because that's four percent remember the match was four

percent so we're gonna get that four percent but it's only gonna be eighty

dollars and again that's gonna be multiplied by the same amount same six

months so it's gonna equal to one thousand forty dollars now let's take a

minute and review that that means we were contributing eight percent for six

months which would work out to that two thousand and eighty dollars now that

means you contributed a total of four percent because your total contribution

was 52,000 but because you waited the six months it was only based on that six

months so it's per paycheck which equals what exactly what you got as a match

which was the one thousand and forty dollars so you missed out on

exactly $1,040 dollars if you had done it over the course of the year unless and

here's the key feature unless your plan has what's called the true up feature

what that means is at the end of the year they go back and say okay in this

situation you made $52,000 and you contributed two thousand and eighty

dollars which is 4 percent therefore we're going to contribute the additional

$1,040 to bring that total match to $2,080

which is the full match of the 4% now that's the key feature so

you want to go back if you're making any sort of adjustment to your 401k and make

sure that it has this true up feature so it's a simple feature a lot of plans

have it but not all of them so you want to check that now why would that be

important well if you know that your plan does not have the true a feature or

does have the true up feature it might affect how you start your savings so in

this instance if you did not have the true up feature you might actually want

to consider making additional sacrifices elsewhere to make sure that you're

getting that full match well knowing that you're going to start contributing

in six months so maybe you just bite the bullet and do it early on the flipside

if you knew you had the true up feature then it wouldn't be an issue in this

scenario because you have the true up feature you double down and started

contributing the full 8% which would catch you up to the full

4% for the entire calendar year because that's what the

contributions are based on. On the entire calendar year so you want to make sure

the true up feature is a part of your plan

now if it's not there's not a whole lot you can do but it's again a good idea

just to know about the true up feature whether or not you have it so you know

how to make those contributions so that first scenario was our delayed saver now

let's talk about somebody who's an aggressive saver and any income level

let's say the same scenario where you're you're doing a different contribution

then the full 4% where you're doing maybe 10% or 15% and

you max out your 401k before the end of the year now the same scenario where

you're you're matching you're getting those matching contributions on a per

paycheck basis so what that means is. Let's say that we did this in the first

half of the year that we only wanted to contribute the 10 or 15% for the first

six months of the year and let's say doing that math we hit the maximum

contribution of $19,000 well what that means is the next

paycheck after that you your plane would not allow you to contribute any other

any other money so that means you're not going to get the match again so if you

don't have the true up feature you've contributed the maximum amount and will

actually be shorted the amount of matching contributions now the same

instance applies to this with the true up feature where if you have the true up

feature they're gonna look at the math and see that you contributed the full

4% and they will make sure that you're getting the full 4%

match. In order to fix this scenario, this fix even if you don't have

the true up feature is a little bit simpler because all you need to do is

making sure that you're contributing all the paychecks throughout the course of

the year so maybe instead of contributing your 10 or 15% for the

whole entire year maybe you bring that down so you'll hit that full $19,000

contribution limit at the end of the year now doing so and making sure that

it's spread out throughout the course of the year will ensure that you're getting

the full company match so again this goes back to the true up feature and

it's very very important that you're familiar with the true up feature and

it's it's quite simple what if it had if you have the true up feature that means

you're going to get the full match if you contributed the right percentage

based on your annual contribution and not on a per paycheck basis so really at

any income level or contribution amount you want to be aware of the true up

feature because if you're not contributing the right amount at the

right time you might be missing out on free money and as I showed you in the

first example you would have missed out on $1,040 going into

your plan just because you made a timing error so it doesn't really matter if

you're a delayed saver or you make changes or you're an aggressive saver

and you're saving a lot of money so it doesn't matter anybody can be affected

by the true up feature whether or not you have it so it's a good idea to just

do a little research and figure out whether or not you have it so you can

make sure that you're contributing right amount at the right time into the

401k to maximize your retirement plan contributions and just to have more

money in your pocket if you've enjoyed this video be sure to subscribe and

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