Plan sponsors can use this article to learn why some 401(k) plans require an annual true-up contribution, how Gusto calculates it, and how it affects participants who contribute unevenly during the year.
Gusto Retirement 401(k) plans calculate and contribute the employer match for every payroll instead of once a year.
Important: Generally, Gusto Retirement doesn’t allow for a true-up provision, but there are times it’s required — most often for conversion plans.
In a true-up, each participant’s match is recalculated after the plan year ends. Gusto compares the match a participant already received in the applicable plan year against what the plan’s match formula would produce if it were applied to their full plan year compensation and elective deferrals at once.
When the annual calculation amount comes out higher than what a participant already received, the plan sponsor contributes the difference. That extra amount is the true-up.
Note: A true-up can only add to the match contribution. It will not reduce or remove the match a participant already has in their account for that plan year. If the annual calculation comes out lower than or equal to what a participant already received, no match is taken back.
A few common situations can cause a participant’s per-payroll match to land below the plan’s annual match formula:
The participant changes their deferral rate partway through the year.
The participant reaches the IRS annual deferral limit before the last paycheck of the year. If there are no deferrals being made, the match stops even though pay continues.
The participant starts and/or stops participating in the plan mid-year.
The participant’s pay varies a lot from paycheck to paycheck, like with a large bonus check or an hourly employee with variable hours.
Each example below uses the same match formula: a 50% match on the first 6% of pay a participant defers, calculated every paycheck, with a true-up provision in the plan document.
Rory earns $60,000 a year across 24 paychecks and defers 6% ($150 each paycheck), all year. Each paycheck, his employer matches 50% of that deferral ($75 each paycheck), totaling $1,800 for the year. When Gusto runs the annual calculation, 6% of $60,000 is $3,600, and a 50% match on that amount is also $1,800. The two numbers match exactly, so Rory doesn’t receive a true-up. Nothing changes in his account.
Amelia earns $200,000 a year across 24 paychecks and wants to max out her elective deferrals early. She defers enough each paycheck to hit the 2026 IRS deferral limit of $24,500 by her 15th paycheck of the year. Once she hits the annual limit, payroll cannot defer any more money for her for the rest of the year, so her last nine paychecks get $0 match, even though she’s still earning pay.
During the 15 paychecks when Amelia was deferring, she received the full match for each payroll — 50% of 6% of her pay, for $250 a paycheck, totaling $3,750. When Gusto runs the annual calculation, 6% of her $200,000 salary is $12,000, and a 50% match on that amount is $6,000. Amelia has already received $3,750 in match, so the employer contributes the $2,250 difference as a true-up.
River earns $60,000 a year, across 24 paychecks, and defers 6% of pay for the first 12 paychecks, then drops to 3% of pay for the last 12 paychecks after reaching a personal savings goal. River’s employer matches 50% of what River defers each paycheck, so River gets $75 a paycheck for the first half of the year and $37.50 a paycheck for the second half, for $1,350 in total match for the year.
When Gusto runs the annual calculation, River’s deferrals for the year add up to $2,700, which is 4.5% of the $60,000 salary. Because that’s below the plan’s 6% match ceiling, the full $2,700 counts toward the match, and a 50% match on that amount is $1,350. That’s the exact amount River already got, so the true-up is $0.
When your plan includes a true-up provision, Gusto runs the true-up calculation after the plan year ends, and you’ll need to contribute any additional match owed. You don’t need to calculate a true-up yourself.
Check your plan document or talk with your plan’s advisor for how true-ups work under your specific plan.
This information is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.