1

My employer offers a 100% match on investments made into our retirement plan, up to 4% of a user's salary, over a 6-year vesting period.

I have no intention of remaining at this company for six years, and am only sure that I'll be here for the next year (due to a minimum employment term set by a relocation deal I took).

There are what look to be some high fees associated with the employer-offered fund, as well, which makes me think it may not be a great option.

If I did invest money via the employer-provided retirement account, I would have the option of dividing it up among various vanguard index funds.

On the other hand, I've been investing money at LendingClub.com, and have been seeing an 18% return over the past year.

(Lending Club Summary)

My question is as follows:

Does it make more sense for me to use the employer-provided retirement plan, using pre-tax money, under a vesting plan that may never benefit me, or does it make more sense to continue funding an investment vehicle using post-tax dollars given the returns I have been getting?

Some background information - I'm 20 and am hoping to retire by 40; I believe the retirement account the employer is providing doesn't allow withdrawals before a certain age, like 65 or whatever the standard is. I'm also using a standard lending club account, not the IRA, so returns I'm getting now are taxable.

Improve this question
3
  • If you can get an immediate guaranteed 100% match, grab it.
    – keshlam
    Feb 11, 2017 at 20:41
  • Well, see, that's the rub; I can't get it immediately; on the books the match is there immediately but if I'm there for less than 6 years then I lose an amount of the match based on how long I was actually there, based on the vesting schedule.
    – schizoid04
    Feb 12, 2017 at 1:28
  • you mention "high fees associated with the employer-offered fund" but then mention the option of Vanguard index funds. What are the fees and how high are they?
    – mhoran_psprep
    Feb 12, 2017 at 13:08

1 Answer 1

Reset to default
2

It depends on the vesting schedule and the likelihood you'll be there long enough to get any vesting. A typical 6 year schedule gets you 20% after 2 years. You already know you'll be there 1 year, so now you need to decide if you'll last 2 years. Unless you know for sure you won't last 2 years, you should take the match on the 4%.

Suppose your retirement plan earns 10%. If you leave before 2 years, compared with your 18% you're only behind by 8% return. But if you last 2 years, you'd be making a 32% return on that same amount. After 3 years you'd make 54%, and up it goes from there until you hit a 120% return after 6 years. I'd take the match simply because you have a lot more to gain than you have to lose if you leave early.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .