How much should I contribute to my 401(k) if I will be leaving the company in a year?

Question

I just recently became 20% vested in my company, and they opened up a profit sharing account for me with a 401(k) option. I will be leaving in the summer of 2008 because I will be going to Graduate school, but by then I will be 40% vested. I am wondering how much I should contribute, if any, to this plan even though I am leaving. I am also wondering if I should invest aggressively, moderately, or conservatively. I know that the yonger you are the more aggressive you should invest, but I am unsure now since I am leaving in a year.

Answer 1

You'll still have 100% of the money you put in, plus interest on that money (plus whatever the company vesting is). After you leave the company, you will have the option of rolling that money over into an IRA, or leaving it in place (although they may tell you otherwise, and discourage that).

I'd save all I can, because of the tax deferral. If you are 25 and somehow manage to save $20,000 now -- with 'normal' returns for stock /mutual fund investments in the IRA, you'll be a millionare by the time you retire (or close to it).

Remember this, though. If you roll over the money into an IRA later, DO NOT have the 401K people issue you a check otherwise there will be huge penalties from the IRS, even if you take that check directly to deposit it into the IRA account. Have the money transferred DIRECTLY to the IRA account. I made that mistake years ago -- never again.

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Answer 2

The vesting portion is only the company match that you would be getting. You keep 100% of your own investment.
Put away what you can afford not to have access to for the next 40 some years. If you put in $1000 and your company matches .25cent on the dollar, they are putting in $250 of that $250 you would get to keep 40% or $100. The extra $150 is forfeited back to the company. So think about what you need to live on, what you want to save in personal savings and then put some in your 401k. The company will maintain your account after you leave if it has a balance over I beleive $3000 without requiring you to move it for 1 year.
The more aggressive you are, the more you will make LONG TERM

Answer 3

Invest as agressively as you can afford to. When you leave the company you have the choice of either rolling it over into another 401k account at a different company or you can roll it over directly into a private IRA where you can even invest in individual stocks or a few ETF's, bonds or mutual funds of your own choice rather than the limited choices that a company often gives.

Answer 4

Being vested only refers to the portion of money they put in, not what you put in. What you put in will always be 100% yours.

To decide how much to invest, consider how much money you will need to have accessible while you are in grad school. If you will have low expenses and/or a fairly large regular savings account, you could still invest aggressively now. If you need to save up for bills while you aren't working, lower your 401K investment for now. The 401K money will always be available if you need to cash it in, but taxes and penalties will take a pretty good bite out of it.

Answer 5

You should look into your company's plan for matching contributions. The company I work for matches up to 15%. Whatever the company will match is what you should invest if it won't hurt your paycheck. The fact that you're going back to school shouldn't matter too much.

Answer 6

Does the company match any percentage of your contribution? Mine matched up to 6 percent so that's what I invested. That's free money.

Answer 7

Keep contributing because you can leave it in the company pot until you want to roll it over or take it to your next company. A 401K is totally moving with you anywhere you go.