How to Make Up Contributions to Your 401(k)

A 401(k) plan is a primary vehicle for retirement savings, with firm annual contribution deadlines that cannot be extended. While you cannot simply add extra funds to make up for a year of low savings, specific, legally protected situations exist. These opportunities grant employees the right to replace contributions they were unable to make during certain types of extended absences from work.

Eligibility for Make-Up Contributions

The ability to make up for missed 401(k) contributions is almost exclusively granted to service members returning to civilian employment under the Uniformed Services Employment and Reemployment Rights Act (USERRA). This federal law ensures that individuals who take a leave of absence for service in the uniformed services can be restored to the same economic position they would have been in, including the opportunity to replenish their retirement savings.

This right is contingent upon reemployment with the same employer the individual worked for before their military service. USERRA applies to all employers in the United States, regardless of their size. The law prevents service members from being penalized in their long-term financial planning due to their military commitments.

Other types of leave, such as extended family or medical leave, do not carry the same federally protected right to restore contributions missed during an absence. The provisions under USERRA are specific to military service.

Calculating Contribution Amounts and Deadlines

Determining the amount of make-up contributions is based on the compensation an employee would have reasonably earned during their military leave. If that amount cannot be easily determined, the calculation can be based on the employee’s average compensation during the 12-month period before their service. The total make-up contribution cannot exceed the IRS annual deferral limits for the years the service member was on leave. For example, if an employee was on leave for all of 2024, their make-up contribution is capped at the $23,000 limit for that year.

The employer is required to contribute any matching funds the employee would have received. This obligation is triggered as the employee makes their make-up contributions, and the employer must contribute its corresponding match according to the plan’s normal schedule.

A reemployed service member has a period equal to three times the length of their military service, up to a maximum of five years, to make the contributions. For example, an employee who served for one year has three years from their date of reemployment to make up their missed deferrals. This make-up period ends if the employee leaves that job, even if the five-year window has not closed.

While the employee can restore contributions and receive the employer match, they are not entitled to any investment earnings that would have accrued during the leave. The make-up funds are invested upon contribution, not retroactively. The employer is also not obligated to include earnings that would have accrued on its matching funds.

The Process for Making Contributions

To make up for missed 401(k) contributions, a returning service member must first formally notify their employer. The employee must take the initiative to request it, as the process is not automatic. Some employers may have a specific form for this purpose.

Following the notification, the employer and employee will work together to establish a payment schedule. The make-up contributions are made through payroll deductions over the agreed-upon period, which cannot extend beyond the legally mandated timeline. These deductions are separate from and in addition to the employee’s regular 401(k) contributions for the current year.

As the contributions are deducted from the employee’s pay, the funds are deposited into their 401(k) account and invested according to their existing elections. The employer simultaneously adds the corresponding matching contributions to the account. The make-up amounts for prior years are reported separately by the employer for tax purposes.

Distinctions from Age 50+ Catch-Up Contributions

USERRA make-up contributions should be distinguished from age 50+ catch-up contributions. The latter allows individuals aged 50 or older to contribute an additional amount above the standard annual limit to help accelerate their retirement savings.

The eligibility for these two types of contributions is different. USERRA make-up contributions are available only to reemployed service members to restore missed savings opportunities due to military leave. In contrast, age 50+ catch-up contributions are available to any employee who is at least 50 years old by the end of the calendar year.

Contribution limits also operate differently. The limit for USERRA contributions is based on the amount the employee would have deferred during their specific period of absence, tied to the IRS limits of those past years. The age 50+ catch-up contribution is a fixed dollar amount set by the IRS annually for all eligible participants.

Finally, the timing differs. USERRA contributions are made over a multi-year period following reemployment, allowing individuals to catch up gradually. Age 50+ catch-up contributions are made on an annual basis and must be contributed within the calendar year.