1.5% 401k contribution if i contribute 6% is that even worth it?

[carlosg]

So i got a new job and was offered an ability to contribute to a 401k. Along with that its been explained that if i leave the company within 2 years all company contributions are taken back and not given to me. Should i just invest on my own in a roth IRA? Or just take the free 1.5% on 6%. I will say the money would be better used to pay off my debt. But im not sure. Any advice would be helpful thanks!

 

[briantheguydude]

@carlosg 1.5% match on a 6% contribution is 25% guaranteed return. So unless your debt is at 25% APR you’re better off contributing.

 

[eishtmo]

@briantheguydude Granted they plan to stay the 2 year vesting period

 

[matt5]

@eishtmo Plans change. I’d take the bird in the hand. 2 years goes by quick the older you are, and if they leave before 2 years, they still have what they contributed

 

[starlightviolet199]

@eishtmo When I started at my current company, I was convinced I'd be here for two years max, and I've now been here over four. No one can predict the future.

 

[blessing2012]

@briantheguydude Could you explain this math? I have a hard time wrapping my head around this

 

[briantheguydude]

@blessing2012 1.5/6 = 0.25.

If OP puts in $6 he’ll get a guaranteed $1.5 match, or 25% return for that year. Short of paying off high-interest credit cards he’s not going to get a better ROI.

 

[abners]

@briantheguydude The point is the likelihood of vesting it while sacrificing potential pay raise by switching? Unless it's instant vest or something as short as 1 year. But on average it's 3-5 years.

 

[andrew742]

@briantheguydude It’s not that simple. If he has CC debt that will stick around for 5 more years than it’s a more complex problem to solve.

 

[rickaustinson]

@carlosg You're asking if free money is worth it? It's always worth it. Get the match.

 

[manuelzepeda]

@rickaustinson Yeah, instant 25% return. What other investments can you make that return 25% overnight? Not any that I know of

 

[metal4life]

@manuelzepeda Not really instant if there's a vesting period, but yeah

 

[justanyone]

@carlosg You know how everyone talks about how it’s great that the market returns about 10% per year on average? This match is 2.5 times that and instantly applied. That is fantastic and should be focused on getting your full match.

Now is it awesome compared to some other matches? Not really. But not all 401ks even have a match, so it’s much better than any of those.

 

[amcapril]

@carlosg Think of it this way. The contributions that come out of your paycheck they can not take away. They can only take away the match and only if you leave in less than two 2 years. So your money you put in is yours, and IF you don’t leave , you get a nice little extra package. And if you do, you didn’t really lose anything because your money that you put in, is always yours. There’s no reason not to take the chance at free money. Odds are, you will probably be there in 2 years anyway.

 

[maryna64]

@carlosg Not only are you getting free money, but if you contribute up to 6%, then you also take that off your taxable income.

 

[davidseeley]

@carlosg Yes, and don't forget that contributing to a 401k reduces your tax bill.

 

[jcarman721]

@davidseeley As long as you don't designate it to a Roth in your 401k

 

[cr7]

@jcarman721 Which also reduces your tax bill, but when you take distributions during your retirement instead of now.

 

[jcarman721]

@cr7 Does it reduce an existing tax bill? It's more just not taxed. I guess that's less taxes but I'm not sure I'd call it a reduction of a bill.