True-up contribution

What a true-up is

Most payroll systems calculate the match one pay period at a time. That shorts employees who do not defer evenly, such as someone who reaches the deferral limit by midyear or who raises their rate in the fall. A true-up compares the match each person received with the match they would have earned on full-year pay and full-year deferrals, and the employer deposits the difference.

Whether you owe one depends on your plan document. If it says the match is calculated on plan-year compensation, a true-up is required. If it says the match is calculated each payroll period, it is not.

Why it matters to employers

It is a frequent operational error. The IRS lists failing to follow the plan’s match formula among common 401(k) mistakes. It is also a morale issue: the employees most likely to be shorted are your highest savers.

Example with 2026 figures

Your plan matches 100% of deferrals up to 4% of pay. A director earning $120,000 defers 40% of pay for the first six months, reaching $24,000, and then stops. Payroll matched 4% of each paycheck for six months, or $2,400. Over the full year she deferred 20% of pay, so the annual formula gives her 4% of $120,000, or $4,800. The true-up is $2,400.

Common mistakes

• Not knowing which method the plan document uses.

• Running the true-up on the wrong pay, for example pay earned before the employee became eligible.

• Forgetting the $360,000 compensation limit for 2026 in the year-end calculation.

• Depositing the true-up after the deadline for deducting contributions for the year.