Advice, please! Temporary Job 401k or Roth IRA?

[laxative_mess]

Hi, I'm hoping to get some advice on how to approach my work 401k plan... I also plan on opening a Roth IRA.

I am a recent college grad that is starting my first job next week. I am going to work for about 10 months before I start graduate school next year Fall.

This is my company's 401k info:

All employees are automatically enrolled in the company’s 401(k) Plan:
• You are eligible for automatic enrollment (2% of your base pay) on your first day of employment. Your first deduction will begin on the first pay period following 30 days of employment.
• After your first six months, we offer a 100% employer match on employee contributions for the first 3% of eligible compensation, and a 50% match on the next 2% of eligible compensation.
• You may contribute up to 99% of your gross eligible earnings up to the IRS limit.*
• We offer 100% immediate vesting - so you don’t have to wait any time period for the money to be yours.

QUESTIONS:

1. I've read somewhere that if I'm only going to stay a short time at a company, I should not bother with the 401k and just focus on my Roth IRA. BUT since my company offers 100% immediate vesting, it would be a good idea to contribute to this 401k up until my employer's match (free money), right?

2. Since the employer match doesn't kick in until AFTER my first 6 months, do you think I should not contribute to my 401k until after 6 months (when the employer match finally kicks in)? Is this allowed?

3. How does this sound?
FIRST 6 MONTHS: Contribute only to my Roth IRA and not contribute to my 401k (since no employer match)
AFTER 6 MONTHS: Since employer match finally kicks in, contribute to 401k up until max employer match. Then contribute rest of money to Roth IRA.

[jIM_Ohio]

This is the reason you don't want to take advice from someone unless you KNOW they know what they are talking about.

I've read somewhere that if I'm only going to stay a short time at a company, I should not bother with the 401k and just focus on my Roth IRA

If there is free money on the table, take it- whether vesting is immediate or not, you "never" know if you really plan to stay 10 months or 10 years (life happens). Do not let short term events derail long term planning.

401k vs Roth is more of a tax question than a match question- if you are in a high tax bracket (25% or higher), I would advise the deduction on the 401k is much better than the tax free status of the Roth.

[jpg7n16]

QUESTIONS:

1. I've read somewhere that if I'm only going to stay a short time at a company, I should not bother with the 401k and just focus on my Roth IRA. BUT since my company offers 100% immediate vesting, it would be a good idea to contribute to this 401k up until my employer's match (free money), right?

That statement is about vesting schedules on the employer match only (and is incorrect anyways - well I should say incomplete).

There are other benefits to your own contributions to your 401k, and in your case, the 100% vesting eliminates all concerns about vesting schedules. Go for it

2. Since the employer match doesn't kick in until AFTER my first 6 months, do you think I should not contribute to my 401k until after 6 months (when the employer match finally kicks in)? Is this allowed?

Jim points out that it deals with your tax bracket. If 25%+, do the 401k even if no match as it saves on taxes.

3. How does this sound?
FIRST 6 MONTHS: Contribute only to my Roth IRA and not contribute to my 401k (since no employer match)
AFTER 6 MONTHS: Since employer match finally kicks in, contribute to 401k up until max employer match. Then contribute rest of money to Roth IRA.

It doesn't have to be going 100% to your 401k or 100% to the Roth. Have you considered splitting the money between the two? Say do half what you ultimately intend to do in your 401k at first, and the rest into a Roth. (if wanting to save 10-15%, do 5-7% to your 401k, and the other half to the Roth)

You could even pull off this strategy after the match begins, and you'll get the best of both worlds! Tax break now on 401k, plus tax advantages later on the Roth.

It's actually easier to set up than you would think. Once you set a %-age at work for the 401k, you don't have to bother with it anymore. And you can set up auto payments to the Roth, and not have to worry about it either.