I've got a job offer and here's the 401K plan. Not a traditional match of my contribution. It's a flat profit sharing at the end of each fiscal year. Historically they contribute 5-6% of your salary but here's the vesting details.

Years 1-2 of service = 20% (effectively a ~1% match if I contribute 5%)
@Year 3 = 40%
@Year 4 = 60%
@Year 5 = 80%
@Year 6 = 100%

In the past I've been fortunate to work for 2 companies that had very good 401k plans. 6% match and 100% vested by year two. There's 2 things bugging me with this group, actually 3.

1) A year goes by w/o their contribution so I miss some interest gains. Long term employment would mean this comes out in the wash though.
2) Seems like it takes a while to get 100% vested to me.
3) Would I be better off dumping more to a Roth IRA if I don't plan on staying with this company a long time? Maybe it would work out long term but there's no guarantee they're going to be in the area after 4 years pass (construction project).

Basically they're offering me a good salary offer and getting me back home, which are my #1 and #2 goals in the short run. Sick of living like a gypsy.

I think it comes down to your salary.

Is this a rolling percentage? In other words, does the profit sharing of Year 3 reach 100% vestment in Year 6, or does it take another 6 full years?

As for the Roth IRA, I don't trust those won't be taxed at some point. At any rate, you don't get any match w/ IRA, so you might as well take some matching as opposed to none.

(06-05-2014 10:51 AM)DrTorch Wrote:  Is this a rolling percentage? In other words, does the profit sharing of Year 3 reach 100% vestment in Year 6, or does it take another 6 full years?

As for the Roth IRA, I don't trust those won't be taxed at some point. At any rate, you don't get any match w/ IRA, so you might as well take some matching as opposed to none.

Good question. I believe it's 100% going forward at year 6 w/o rolling the past to 100%. I'm going to ask HR to clarify that one though.

I do the Roth 401K because I fully expect tax rates to go up in the future. Will they get taxed again? Maybe, but I'm going on the assumption that it will be significantly less than the standard 401K contributions.

Of course, I started doing this years ago and now that I am divorced and the only income it may be time to revisit my Roth 401K contributions as I don't have all the writeoffs I used to in order to lower my tax bracket. Not paying the taxes until I withdraw it may be a better option for me now.

(06-05-2014 10:47 AM)blunderbuss Wrote:  I've got a job offer and here's the 401K plan. Not a traditional match of my contribution. It's a flat profit sharing at the end of each fiscal year. Historically they contribute 5-6% of your salary but here's the vesting details.

Years 1-2 of service = 20% (effectively a ~1% match if I contribute 5%)
@Year 3 = 40%
@Year 4 = 60%
@Year 5 = 80%
@Year 6 = 100%

In the past I've been fortunate to work for 2 companies that had very good 401k plans. 6% match and 100% vested by year two. There's 2 things bugging me with this group, actually 3.

1) A year goes by w/o their contribution so I miss some interest gains. Long term employment would mean this comes out in the wash though.
2) Seems like it takes a while to get 100% vested to me.
3) Would I be better off dumping more to a Roth IRA if I don't plan on staying with this company a long time? Maybe it would work out long term but there's no guarantee they're going to be in the area after 4 years pass (construction project).

Basically they're offering me a good salary offer and getting me back home, which are my #1 and #2 goals in the short run. Sick of living like a gypsy.

Interesting problem, but here are a couple of comments (I have completed the Certified Financial Planner educational program but do not actively advise).

From my experience, a 6 year vesting isn't too bad, as I've seen a lot of 10 year schedules. Short vesting periods are becoming more common but are still rare. Even after 4 years, you'll effectively get 3%.

The big issue on the Roth is no tax deductability, whereas the 401K is pre-tax.But without knowing your specific financial situation, I won't venture a suggestion.

However, generally, if you are getting a "good" salary, you should be better off with a pre-tax 401K.

I'll just state my salary in these terms. They're giving me a better offer than anybody else I've worked for to date. Great salary for the area & my expenses should be going down via cost of living.

Then you still come out ahead. There isn't much else to say.

(06-05-2014 11:07 AM)HeartOfDixie Wrote:  Then you still come out ahead. There isn't much else to say.

10-4. I guess I'm kinda hung up on the 401k stuff. Need to play some catch up on retirement.

Thanks.

Good luck with the new job though.

Don't be too worried about some details that might cause you to miss the forest for the trees.

Again, best of luck and congratulations.

It amazes me the number of people that work for employers that provide 401k plans, yet those people do not participate. Especially if the employer matches. That's like throwing money away.

6 years isn't too bad to be be fully vested, I think with my employer it was 5 years.

(06-05-2014 11:10 AM)blunderbuss Wrote:  

(06-05-2014 11:07 AM)HeartOfDixie Wrote:  Then you still come out ahead. There isn't much else to say.

10-4. I guess I'm kinda hung up on the 401k stuff. Need to play some catch up on retirement.

Thanks.

The IRS rules allow additional "catch up" amounts once you reach the age of 50. Individual company plans may or may not.

By the way, a good board for investment and retirement discussions is at Morningstar

Morningstar discussion

They even have a "spin room".

(06-05-2014 10:55 AM)mlb Wrote:  I do the Roth 401K because I fully expect tax rates to go up in the future. Will they get taxed again? Maybe, but I'm going on the assumption that it will be significantly less than the standard 401K contributions.

Of course, I started doing this years ago and now that I am divorced and the only income it may be time to revisit my Roth 401K contributions as I don't have all the writeoffs I used to in order to lower my tax bracket. Not paying the taxes until I withdraw it may be a better option for me now.

Social Security wasn't taxed at one time either.

I would not get too hung up on this. Put the max contribution in it and forget about it. I assume you are still under age 50...so...roll the dice and pick funds that have the highest risk and payoff at this point. You are in it for the long haul anyway. Let dollar cost averaging do it's thing.

What are you going to do with your roll over? I would suggest index funds..particularly Vanguard. They charge the least of anyone to manage the funds. I made a ton of money in Vanguard Index 500 over the last 25 years.

I have had more than one Investment guy tell me that for the long haul...nothing he could offer me could top Index funds for maximum profit with minimum risk.

I know people say not to try and time the market...but...with rollovers it is possible. You might want to open an account and just put the money into cash(money market index fund) for a short time and wait for a drop in the market to buy into a fund cheaper. I did this a couple of times after changing jobs and far outpaced what little I lost on the sideline when the market move back up.

Enough of my soapbox. Good luck with the new gig.

(06-05-2014 10:55 AM)mlb Wrote:  I do the Roth 401K because I fully expect tax rates to go up in the future. Will they get taxed again? Maybe, but I'm going on the assumption that it will be significantly less than the standard 401K contributions.

Of course, I started doing this years ago and now that I am divorced and the only income it may be time to revisit my Roth 401K contributions as I don't have all the writeoffs I used to in order to lower my tax bracket. Not paying the taxes until I withdraw it may be a better option for me now.

I have no problem with a Roth and they have their purposes....but....I maintain the "snowball effect" is deceased with them. I would rather put all my money in the market for the long haul. The more money I have invested?...the faster that snowball rolls. Ill worry about the tax burden at retirement. The goal is dollar cost averaging over the long haul. It is a proven solid route to retirement savings.

(06-05-2014 12:26 PM)VA49er Wrote:  It amazes me the number of people that work for employers that provide 401k plans, yet those people do not participate. Especially if the employer matches. That's like throwing money away.

6 years isn't too bad to be be fully vested, I think with my employer it was 5 years.

Keep in mind that all the money you put in..is yours regardless. Only the employer contribution is at stake if you leave early. Put every dime you can afford up to the allowed limit. Pay YOURSELF first. Sheltering income is the key.

(06-06-2014 10:08 AM)Fo Shizzle Wrote:  

(06-05-2014 12:26 PM)VA49er Wrote:  It amazes me the number of people that work for employers that provide 401k plans, yet those people do not participate. Especially if the employer matches. That's like throwing money away.

6 years isn't too bad to be be fully vested, I think with my employer it was 5 years.

Keep in mind that all the money you put in..is yours regardless. Only the employer contribution is at stake if you leave early. Put every dime you can afford up to the allowed limit. Pay YOURSELF first. Sheltering income is the key.

I didn't realize that the employer match DOES NOT count against the total yearly max contribution limit. Every job I've worked I've utilized the 401(k) as it simply makes sense, especially if you get a match. Puts a dent in the paychect as I'm trying to max out but I've found that I just adapt and live lower than my means. After a while you don't even miss the $$ going into the 401k plan.