I'm about to start a new job and the company offers a Roth 401(K) with a 10% employer match. I plan to only work this job for two years before leaving to go back to school. Should I be conservative in my asset allocations in this account because realistically my investment horizon is pretty short (again, only talking about this account). Conservative is relative here obviously but I mean conservative based on whatever my risk level is?

My rationale is because my time horizon for this account really is pretty short, only a couple of years. When I leave the company in a couple of years I want to roll my 401(K) into a IRA, also roth. Example: If I put most/all my 401(K) funds into riskier investments like the stock market, small caps, whatever, and the stock market drops 30% right before I do the roll over I basically have to sell my 401(K) at a low point. My horizon in my IRA is a lot longer so the drop doesn't bother me, but in my 401(K) I basically want to have this money available in a short time span (a couple of years) to put it into my IRA.

Yes if the stock market or whatever risky investments I could choose keep climbing over the next couple of years I would miss out on those gains, but I don't know what they'l do in the future.

More info: Ryan said in the comments that I should think about if two years turns into a lot more. My employer's match is 20% vested after 1 year, 40% after 2 years, up to 100% at 5 years, so I guess one thing I could do is invest my employer's match in riskier investments and my personal contributions in something less risky. Then if the riskier assets bomb and I leave after two years I still have all of my contributions and some free money from my employer, but if the market keeps rising and I stay for longer, I still have all of that growth once I'm more vested.

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    I don't necessarily have a solid answer for you, but I will say that future you may think differently. Two years may turn into three or four or five. And you don't want to be five years down the road wishing you'd started investing when you started the job.
    – Ryan
    Commented Jun 17, 2014 at 21:33
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    @Ryan No that makes sense so I added more info. Does my new edit make sense?
    – Michael A
    Commented Jun 17, 2014 at 21:38
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    Is your employer's 401k with a brokerage company that provides retail services? If so, you may be able to do the rollover "in-kind" to an IRA with the same brokerage, so that the particular assets in the account just transfer directly into your self-managed IRA seamlessly. I did this once when my employer was using Fidelity for their 401k management. Commented Jun 18, 2014 at 15:49
  • @RickGoldstein no, its not. my IRA is already set up with vanguard and the 401(K) is just an account the company manages with funds from a whole bunch of fund companies, DFA etc. Its not with a retail brokerage.
    – Michael A
    Commented Jun 18, 2014 at 16:17

3 Answers 3


My advice would be to invest in the 401k with the same type of funds you'd purchase when you rollover to your IRA. They are both retirement accounts. If the stock market tanks, your 401k balance will be low but you'll also be purchasing stocks at a much cheaper price when you establish your roth.

You should create an asset allocation based on your age, not on the type of retirement account you have.

One question to consider: When you do become a student, you'll likely be a in lower tax bracket. Can you contribute pre-tax dollars and then rollover to a ROTH in the year that you're a student?

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    Exactly. The rollover is a complete no-op; aside from having your money out of the market for a few days while the funds transfer, the rollover should have no effect whatsoever on your allocation decisions.
    – dg99
    Commented Jun 17, 2014 at 22:33
  • I thought about making a pretax contribution and then rolling over when I'm a student but in my new job I'll be in the middle to low part of the 15% bracket anyway and I probably won't be higher than that in school. I'm pretty sure I'll be in the same tax bracket when I'm in school and I don't think Ill be in the 25% bracket when I'm in school so the pretax/post tax won't make any difference.
    – Michael A
    Commented Jun 17, 2014 at 23:08

It doesn't make a difference if you will be keeping it in the 401K or transferring it to an IRA, it is still retirement money that you plan on investing for decades.

Pre-Enron many employees invested significant amounts of their retirement funds with the employer. One of the risks was that if a single stock was down at the wrong time, you were hurt if you needed to sell.

If you are going from an S&P 500 in the 401K to an S&P 500 in the IRA, it doesn't matter if the the market is up or down, the two funds will be pretty much in synch.


Your retirement PLAN is a lifelong plan and shouldn't be tied to your employer status. Max out your 401(k) contribution to the maximum that your employer matches (that's a 100% ROI!) and as much as you can afford.

When you leave the work force rollover your 401(k) to an IRA account (e.g.: you can create an IRA account with any of the online brokerage firms Schwab, E-Trade, Sharebuilder, or go with a brick-and-mortar firm like JP Morgan, Stifel Nicolaus, etc.).

You should have a plan: How much money do you need/month for your expenses? Accounting for inflation, how much is that going to be at retirement (whatever age you plan to retire)? How much money do you need to have so that 4.5% of that money will provide for your annual living expenses? That's your target retirement amount of savings.

Now figure out how to get to that target.

Rule #1 Invest early and invest often! The more money you can sock away early in your career the more time that money has to grow.

If you aren't comfortable allocating your investments yourself then you could go with a Targeted Retirement Fund. These funds have a general "date" for retirement and the assets are allocated as appropriate for the amount of risk appropriate for the time to retirement.

  • sorry this doesn't really answer my question. I know about saving for retirement, estimating how much I need etc but this doesnt really address my question.
    – Michael A
    Commented Jun 18, 2014 at 19:19
  • The answer was "no." Do not invest conservatively just because you are going to be with your employer a short time. You should have an allocation mix specific to where you are in relation to your retirement date. Stick with that allocation mix and don't be influenced by how long you are going to be with your employer.
    – Arluin
    Commented Jun 19, 2014 at 0:00

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