Evaluating 401(k) Vesting When Considering Job Changes

Joey should carefully evaluate his 401(k) vesting schedule before changing jobs to avoid losing significant benefits.

### Evaluating 401(k) Vesting When Considering Job Changes
* 💼 Joey, at 28 years old, is contemplating how much his employer's **401(k) match vesting** should influence his job search for **better salary and compensation packages**.
* 📊 Understanding vesting is crucial; while your contributions are always **100% vested**, employer contributions may have **time requirements** before you can access them.
* ⏳ For example, if an employer has a six-year graded schedule for profit-sharing contributions, you need to work there for **six years to be fully vested**, which could affect your decision to **switch jobs**.
* 📝 It's important to take inventory of upcoming bonuses and vesting dates, as many people **overlook these financial benefits** when changing jobs.
* 💰 Consider the timing of your job change; delaying your departure to **collect a year-end bonus or profit-sharing contribution** could significantly impact your financial situation.
* 🔍 Additionally, understanding how your employer's vesting plan operates is essential to **avoid leaving money on the table** by leaving early.
* 📈 Lastly, factor in the entire benefits package, including any incentive compensation like **RSUs or stock options**, rather than focusing solely on **base salary** when comparing job offers.

[Music] Yeah, we do have a question about market volatility. But since we're talking 401(k)s, we're going to kick it off with Joey's question about 401(k)s. He says, How much consideration should I put into my employer 401(k) match vesting over a few years before I start to look for jobs with a higher salary and better compensation packages? He's 28, he's partnered, and has no kids. So, how much should the vesting schedule play into your decisions about jobs and careers? Well, let me explain what vesting is first, then why don't you talk about how you think about that when it comes to changing jobs. You know, when you participate in a 401(k), there's a couple different types of money that can go in. Your contributions can go in through salary referrals. Those dollars are always 100% invested immediately, meaning you put that money in, you change jobs, you get to take it with you. Well, in addition to that, your employer can also put money in, and they can put money in

as a safe harbor contribution. They can put money in as a matching contribution, or they can put money in as a profit-sharing contribution. Well, depending on what types of contribution your employer puts in, they might put some time requirement necessary for you to have worked there before you actually have access to those dollars. So, if they do a profit-sharing contribution and they put it in, and they say that there's a six-year graded schedule, you will have needed to have worked at that employer for at least six years before you're 100% invested in those contributions. So, a lot of times when you look at your 401k balance, you might have a balance that says $50,000, but of that 50, only 40,000 is vested. So, then the question becomes if I have an unvested balance, if I'm thinking that I might have to forfeit some of those dollars if I were to change jobs, how much that factor into my job-changing consideration. Yeah, this is, by the way, Joey, congratulations that you're

Actually thinking about this, I'm shocked at how many people will change a job in the month of November when there's a year-end bonus right around the corner that might be 10, 15, 20% of their compensation. People do it all the time. Or I'll tell you, when I worked in government, I was always shocked at how many people would leave a year before they vested into their pension benefit, like for law enforcement and other things. I was like, you know, just to go make $3 or $4,000 more in the county just north of where they were already working. So here's three things I quickly wrote down. First of all, know what you're walking from and the impact of timing. It's exactly what I'm talking about, is that you need to literally take an inventory of all of your bonuses that are coming up, when they are, put the date down of when you anticipate these bonuses coming due. Are there any like vesting dates? Are there any restrictions on any of these benefits that you have?

know those numbers and actually write it down and then do the math, actually figure out what is the dollar amount of money, estimate it out, what are you walking from, and how is the timing of that impacted. And then the last thing is, does this move the needle, does this change maybe instead of you leaving in November, you leave in February because you want to get that year-end bonus, or maybe you figure out that your 401k has a last day provision on getting those profit-sharing contributions, and you realize, Hey, maybe I ought to be here through the first day of next year so that I actually get that full year contribution even on the profit-sharing. So, ask yourself, does this change the timing of my decision, and does it change the overall decision? Because maybe this benefit is bigger, hence that's why your employer offers you these golden handcuff type things to try to entice you to stay as well as to keep you happy. Another thing that I would think through is really understand how your plan operates. So, how does your plan Cal

calate years of service. If you are on some sort of graded or vested schedule, it might be 20% after year 2, and then 40, and then 60, and then 80, and so on. Well, if the way that they schedule that is calendar year, that might be one calculation you should consider. But if it's based on your date of employment and they look at actual time served, that sounds bad, actual time worked. You want to make sure you understand that CU. You just don't want to leave a month early, two months early, three months early, and leave that on the table. And the same thing is true. I know we're talking about 401ks here, but if you are someone who is paid with incentive compensation and you have RSUs or stock options or those types of compens, make sure you factor that into. It's not just base salary at this job versus base salary at that job. It is entire benefits package versus entire benefits package. You want to make sure, I think you said it, Brian.

do the math to make sure you know what you're going from, and you know what you're going to.

Should 401k Vesting Hold You Back from a Higher-Paying Job?

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Considering 401(k) Vesting When Job Hunting

Vesting refers to the time required to gain full access to employer-contributed 401(k) funds.

Employer contributions can have different vesting schedules, which may impact the decision to change jobs.

It's important to weigh the potential forfeiture of unvested funds against the benefits of pursuing a higher salary and better compensation packages.

Many people change jobs in November to take advantage of year-end bonuses.

It's important to take inventory of upcoming bonuses, vesting dates, and any restrictions on benefits.

Understanding the timing and impact of these factors can influence the decision to leave a job.

Considering Years of Service and Compensation

Years of service may be calculated differently, impacting benefits like vesting schedules.

It's important to understand whether the schedule is based on the calendar year or actual time worked.

Additionally, factor in incentive compensation, RSUs, and stock options when comparing job offers, as the entire benefits package matters.

The Importance of Understanding Financial Transitions

It's crucial to analyze your current financial situation before making any changes.

Knowing your starting point helps you set realistic goals for the future.

Understanding the financial transition ensures you make informed decisions and avoid potential pitfalls.