401K Matching and Vesting
Shadox from Money and Such wrote up an excellent article about 401k Matching Pitfalls. After waiting for a year before my employer began matching contributions, I finally began contributing to my 401k this past May (my 1 year anniversary at my company).
I really should have taken advantage of the tax benefits of contributing to a 401k, even without the match, as it would have helped negate the taxes I owed this past filing season. However, as I mentioned in my linked article above, I felt that paying off debt was more important. That’s one reason we were able to pay off our $25,000 auto loan in just over 2 years, instead of the original 6 year loan. In that same time, I also paid off another $10,000 on my Honda Ridgeline (still the best truck ever made).
I really want to highlight one thing from Shadox’s article: Vesting Period. My original employer had a 5 year vesting period. They changed that to 3 years while I was still there, which helped greatly as I left after 4 years. That meant I got quite a few thousand dollars extra when I left, versus losing all that match.
It wasn’t until about a month after I began contributions with my current employer before I checked up on their vesting period. I was very pleasantly surprised to find out that I am vested immediately! They’re matching 100% for the first 3% of salary, plus 50% for the next 2%. That means with a 5% contribution, I get an extra 4% “free”. And this isn’t company stock either. It’s cold, hard cash that’s automatically dispersed across my investment elections.
Word of advice when considering a job change: If you aren’t vested yet, think about how much longer until you are. If you only have another year to wait, and it could mean thousands of dollars lost or gained, then maybe you should reconsider leaving your employer until you vest. If your prospective employer is really itching to bring you on-board, then tell them how much money you would lose and see if they could match that as a bonus (get the AFTER TAX AMOUNT to match) or direct contribution into your new 401k. Not many of us have that leverage power, but it’s worth a shot.