31 Dec I got a raise. Is there time to max out my 401(k)?

Q. I just got a raise and I want to lower my tax bill. I haven’t contributed much to my 401(k). Can I max it out before the end of the year or am I limited because I was only contributing 2% of my paycheck until now.
— Trying to save

A. Congrats on your raise.

You may have run out of time to make this kind of a move.

Most 401(k) plans require the participant to make an election before the year begins requesting that a set dollar amount or percentage be withheld from the participant’s paycheck, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

If salary levels increase and a set dollar amount was input, the participant may want to increase it commensurate with the salary, he said, while if a percentage was input, the dollars being contributed would, likewise, increase.

Your specific question deals with what is termed a “true-up.”

“A true-up ensures that employees who did not contribute to the desired level or contributed too much, can adjust their contribution to the desired level,” he said. “Since many employers match a portion of their employees’ contributions, a true-up allows employees to receive a higher match than if a true-up hadn’t occurred.”

Simply, if the plan allows for a true-up, you can increase or decrease your contributions, Karu said.

And don’t forget, even if you’re unable to make changes for 2019, you can make the change for 2020.

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This story was originally published on Dec. 31, 2019.

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