401k Vesting Question

401k Vesting Question

I left my previous employer in January of this year and have been waiting to receive my matching funds from last year (deposited June 15th of this year). I was looking at the company’s 401k rules and see that I am only 20% vested after my 2.5 years of service. So basically what I was expecting was that I would get 20% of my matching funds for the previous year seeing how I am not longer an employee. It appears however that I got 100% of my matching funds.

Now we aren’t talking about a whole lot of money here ($2300 matching), but I was expecting to only get about $400. So now here is the question. Did my company goof by giving me the entire match? I am certain that if I try to withdraw the money now I will only get my roughly $460 that is vested, but I was under the assumption that the day I quit my job my employer would go into my 401k and take out all money that was not vested. Apparently I assumed wrong.

So now I think I would be a moron to transfer my money out as I basically am getting $1840 of the company’s money for free, which can grow and compound for the next 30+ years and I get to keep the interest. At 10% return that is over $40,000 in interest (before taxes in 2040) by the time I turn 60.

Am I completely overlooking something here? This seems entirely too good to be true?

  • TFB

    Yeah, too good to be true. The matching money is tracked by a subaccount within your 401k by source. However much it grows, you will get 20% of it. For example let’s say this $2,300 grows to $23k, when you withdraw, you will get $4,600. If you rollover today at $460, you will grow it to $4,600 if you invest in the same funds. You are not going to gain anything real by keeping it in the 401k.

  • MFJ

    Dang I knew I was overlooking something – thanks for straightening me out…..guess I’ll continue on with the rollover after all.

  • This happened at my former employer also. They had a rule that if you leave the company with x years of service, you have x years to return and not lose any unvested balance. My current company is the same. Maybe your company does something similar.

    Say you have $10k in matching funds that are %20% vested and you leave after 5 years. Then $2000 can be taken out and the other $8k stays. If, after 5 years you do not return, the unvested funds disappear.

  • j2r

    That was quite interesting… My current 401k and my previous 401k didn’t have any matching, but they were both 100% vested from the beginning.

    20% after 2.5 years sounds like a lot, but again, my company doesn’t match, so I guess it turns out even somehow.

  • MFJ

    Yeah I think you had to work there like 8 years before being fully vested.

    My new employer I am 100% vested for the 4% they match and deposit with each paycheck. They also have an additional 5.5% they put in at the end of each year and that is vested after 3 years.

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