401k when leaving company.

[NomadMustache]

Hi all,

This is my first post. I apologize if this topic has been covered. Please direct me to related posts if possible.

I work at a company with a 401k plan through ADP. I've looked at the funds available and most have quite high expense ratios (over 1%). The lowest is 0.31%. The company is 0% vested until after you've been there for two years.

Because I don't like the job, I am leaving before then anyway. This eliminates the "free money" argument in favor of 401ks, right?

Is there another way to get similar or better tax-savings? I've already opened a traditional IRA with Vanguard, as that seemed like a better fit for my situation.

Am I missing something? Is there anything else I should consider?

Thank you in advance for the mustachian wisdom.

[seattlecyclone]

A traditional IRA is great because you can invest in low-fee funds that your 401(k) plan may or may not have. The downside is that you can only contribute $5.5k per year. If you are able to save more than this, you should also contribute to the 401(k). The nice thing about knowing that you'll have a different job in a couple of years is that the expense ratios in your current plan don't matter too much. You'll have the opportunity to roll this money over to a lower-fee option once you leave your current employer, so the higher expense ratios are only a temporary thing.

[NomadMustache]

Thanks for the response. If I understand your suggestion correctly, I might as well take advantage of the tax deferral my company's 401k would give me, regardless of whether I will receive matching funds. Then I should take all of that untaxed money with me and roll it over to my IRA.

Also, I  noticed an error in my original post-- the lowest expense ratio in my 401k plan is 0.71%.

[forummm]

Yes, take full advantage of the tax advantaged savings in your 401k. When you leave, just roll it over into a Vanguard IRA with their low-fee funds. You won't ever be able to go back and retroactively save in a 401k for 2015. So unless you'll have another job with a 401k early enough in 2015 to be able to max it out, you should make use of the one you actually have now.

[hwstar]

Two things to seriously look at after you have left the company:

1. Are the fees on the funds reasonable, and comparable to what you would have to pay if you moved the money to an IRA.
2. Is the company financially stable? If it is on shaky financial ground, I'd move the 401k funds to an IRA ASAP. If the company goes under,
the trustee of the 401k fund may go away, freezing the 401k for all participants until it is sorted out. Additionally,  very high fees may start
being deducted from all accounts to cover the costs of the orphaned 401k plan. It's better to have moved your money out before this becomes an issue.

[NomadMustache]

Thanks to all three respondents. I had read a good bit before posting, but hearing from real people with experience is nice.