Should I stop investing in 401k to put more toward debt

Question

I currently have a debt of around 40k between student loans and car. Both are being paid, and most of the time paid ahead/extra. But they are still taking a while and gaining interest of course.

Since I was comfortable making the payments with some money to spare I decided to take advantage of my employer match and contribute 5% pay to my 401k, matched fully.

This was about a year and a half ago, since then I've began to care more about my finances and reread the terms of my 401k. I found in the not so small print that you have to become vested to earn the employers match, which happens after 3 years, if you leave before then you get 0% match.

Now, I do not intend to stay at this company for another year and a half. I'm not going to leave for the sake of leaving but if I do leave I will likely get a substantial pay raise, offsetting the loss of the match and more.

My question is, should I stop investing in my 401k now since it is no longer being matched, and put it toward my debt instead?

EDIT: Here are some numbers to help. I make $52,499 a year. I put $2,100 into 401k a year (Not quite 5% apparently I didn't update since raise). Can't seem to find my current 401k balance but those numbers would mean it's probably $2800ish pre match, matched would double it. Interest rates on my debts are from 3-6% averaging about 4.5%.

Answer 1

I can only tell you what I did in my own case, and it worked out really well. When I had a match I contributed up to the match percentage, but not more. Our household income crosses into the 33% bracket, so if my wife or I contributed $1000, it only costs us 670 while gaining 2000. That was too good to pass up.

However, when I did not have a match, I did not contribute and dedicated all of that money to debt reduction. One can make a mathematical case for this not being the best idea, however, there are behavioral side effects that are of far greater benefit.

You will want to get out of debt sooner if you are not contributing to retirement. It will act as a motivational tool to increase income, increase payments, and decrease spending.

It will help you build wealth faster. Your greatest wealth building tool is your income. Once it is not nerfed by interest payments, you will have more to build wealth. Also currently compound interest is working against you.

Given your income you don't receive much tax benefit from contributing to a 401K, and you have a defacto no match as you will leave before the vesting period I would suggest not contributing. Instead pay down your debt like crazy. Shoot to be out of debt in 2 years. You might have to take on a second job to do so, but it is well worth it.

Answer 2

Given that it sounds like there are not any specific plans to leave the company (just a feeling that you probably will), I think you ought to continue to contribute up to the company match. Two reasons: 1) even if you don't vest, you will still get your contributions. They can't take that away no matter what. Getting into the habit of saving is almost never a bad idea. 2) 18 months can go by in a hurry. I think you can always do the math if and when you start pursuing new opportunities what the offer would need to be to make up for giving away the vested match. But until you have something in hand, I think you should not be setting aside opportunities for what is essentially free money. There is always the possibility that your current company will be that next big opportunity, and then you may regret not taking fuller advantage when you could have.