In some firms, the true-up employer match for year X is received the next year (i.e., year X + 1), but it counts toward the 401(k) contributions for year X.

One of the main reasons why the employer match for year X may be received the next year (i.e., year X + 1) is that the employer may need to wait till the end of the year to be able to know the exact eligible compensation of an employee in order to compute the true-up employer match.

If the true-up employer match goes beyond the 401(k) maximum contribution as defined in IRS 415(c)(1)(A) (mirror) (54kUSD in 2017, 55kUSD in 2018), is it possible for the employee to get the full true-up employer match and in return undo past of their 401(k) contributions so as to not go over the 401(k) maximum contribution limit?

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1 Answer 1


LadyGeek and mervinj7 referred me (mirror) the IRS "Fixing Common Plan Mistakes - Failure to Limit Contributions for a Participant" (mirror):

Fixing the Mistake:

If contributions for a participant include both employer and employee elective contributions, exceed IRC Section 415(c), correct in the following manner:

Step 1: Distribute unmatched elective contributions (adjusted for earnings) to the affected participant. If any excess remains, then proceed to Step 2.

Step 2: Distribute elective contributions (adjusted for earnings) that are matched, and forfeit related matching contributions (adjusted for earnings). If any excess remains, then proceed to Step 3.

Step 3: Forfeit other profit-sharing contributions.

The employer should report the corrective distribution made to the participant on Form 1099-R. The participant should include the distribution as income but does not have to pay the 10% additional tax on early distributions under §72(t) of the Code. In addition, the participant may not rollover the corrective distribution to another qualified plan or to an IRA.

The plan sponsor should transfer the forfeited employer contributions (profit-sharing or matching) to an unallocated account. These amounts are used to reduce employer contributions in the current year and, if applicable, subsequent year(s).

Gadget mentioned to me (mirror) what seems to me an optimal policy to handle true-up:

My company 401k will place excess true up contributions above the 401k limit of 55k in a non qualified account. They handle ensuring that it does not breach the limit. If that is what you're asking. I'm guessing they aren't required to place excess funds in a non qualified plan and it's just a great perk.

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