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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.

  • If you can get an immediate guaranteed 100% match, grab it. – keshlam Feb 11 '17 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 '17 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 '17 at 13:08
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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.

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