Lump-sum investing, or putting larger amounts of money to work sooner, maximizes time in the market, which can increase growth potential, according to research from Vanguard released in 2023.    

But it’s important to understand your 401(k) plan before front-loading contributions because not all plans offer a true-up feature, experts say.

Roughly 67% of 401(k) plans that offer matches more than annually had a true-up in 2023, according to a yearly survey released by the Plan Sponsor Council of America in December.

Clients have been “penalized for maxing out too early” without a true-up, which meant “leaving money on the table,” said CFP Ann Reilley, principal and CEO of Alpha Financial Advisors in Charlotte, North Carolina. She is also a certified public accountant.

For example, let’s say you’re under age 50, making $200,000 per year, and your company offers a 5% 401(k) match without a true-up.

With 26 pay periods and a 20% contribution rate, you’ll reach the $23,500 deferral limit for 2025 after 16 paychecks and only receive about $6,200 of your employer match. In this case, you’d miss roughly $3,800 of your employer 401(k) match by maxing out early without a true-up.

You can learn more by checking your 401(k) summary plan description, which outlines key details about the account, Reilley said.  

Only about 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly five million participants.

President Joe Biden on Sunday signed the Social Security Fairness Act into law, clearing the way for nearly 3 million public workers including teachers, firefighters and police to see an increase to their Social Security benefits.

Now, two provisions that reduced Social Security benefits for certain public workers who receive pensions — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO — have been eliminated.

The WEP and GPO were put in place more than four decades ago. When the provisions were created, the goal was to ensure that workers who earn public pensions from employment where they did not pay into Social Security, but who also qualify for Social Security benefits through other work, receive the same payout as workers who pay into Social Security for their entire careers.

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The WEP was enacted in 1983 and reduces Social Security benefits for some workers who also receive pension or disability benefits from work where Social Security payroll taxes were not withheld.

The GPO was enacted in 1977 and reduces Social Security benefits for certain spouses, widows and widowers who also receive income from their own government pensions.

For now, beneficiaries should make sure the Social Security Administration has their current mailing address and direct deposit information on file, according to the agency. That information can be updated online or by calling or visiting a Social Security office.

Target-date funds are a way for 401(k) participants to put their retirement savings on autopilot — and they capture the lion’s share of investor contributions to 401(k) plans.

About 29% of assets in the average 401(k) plan were held in TDFs as of 2023, according to the Plan Sponsor Council of America, a trade group. That share is the largest of any fund category, and is up from 16% in 2014, according to PSCA data.

By 2027, target-date funds will capture roughly 66% of all 401(k) contributions, and about 46% of total 401(k) assets will be in TDFs, according to a 2023 estimate by Cerulli Associates, a market research firm.

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That popularity is largely due to employers’ broad adoption of TDFs as the default investment for workers who are automatically enrolled into their company 401(k) plan.

While the funds carry benefits for many investors, they may have drawbacks for others, financial advisors said.

“Target funds have a place for some investors, but they certainly aren’t and shouldn’t be used for everyone,” said Winnie Sun, managing partner of Sun Group Wealth Partners, based in Irvine, California, and a member of CNBC’s Financial Advisor Council.

“From where I sit, target-date funds have been nothing short of the biggest positive development for investors since the index fund,” Christine Benz, director of personal finance and retirement planning at Morningstar, wrote in June.

They take important decisions like asset allocation and investment selection “wholly out of investors’ hands,” Benz wrote.

TDFs amount to inexpensive and reasonable investment advice for people who may not be able to afford hiring an advisor and who may be prone to making “kooky” investment choices, she wrote. TDFs also discourage behavior known to erode investor returns, like buying high and selling low, she added.

“They’re designed to be easier-to-manage investments for those who just prefer simplicity and more convenience,” Sun said.

This aims to boost after-tax investment returns by strategically holding stocks and bonds in certain account types.

For example, assets with potential for high growth are well-suited for Roth accounts, since investment earnings are generally tax-free in retirement, said McClanahan.

Experts also generally recommend holding many bonds and bond funds in tax-deferred or tax-exempt accounts.

Despite shortcomings for certain investors, “do target-date funds help investors who are unaware of the basics of investing find their way to a sane investment mix given their life stage?” Benz wrote. “A thousand times yes.”