Optimal way for withdrawing vested company match from my 401k?
Why would you want to withdraw only the company match, and presumably leave your personal contributions sitting in your ex-company's 401k plan? Generally, 401k plans have larger annual expenses and provide for poorer investment choices than are available to you if you roll over your 401k investments into an IRA. So, unless you have specific reasons for wanting to continue to leave your money in the 401k plan (e.g. you have access to investments that are not available to nonparticipants and you think those investments are where you want your money to be), roll over part (or all) of your 401k assets into an IRA, and withdraw the rest for personal expenses.  If your personal contributions are in a Roth 401k, roll them over to a Roth IRA, but, as I remember it, company contributions are not part of the Roth 401k and must be rolled over into a Traditional IRA. Perhaps this is why you want to take those in cash to pay for your personal purchase? Also, what is this 30% hit you are talking about? You will owe income tax on the money withdrawn from the 401k (and custodians traditionally withhold 20% and send it to the IRS on your behalf) plus penalty for early withdrawal (which the custodian may also withhold if you ask them), but the tax that you will pay on the money withdrawn will depend on your tax bracket, which may be lower if you are laid off and do not immediately take on a new job. That is, the 30% hit may be on the cash flow, but you may get some of it back as a refund when you file your income tax return. You can borrow against a 401k for 5 years. This defers any penalty fees that the IRS mandates. Put the cash back in your 401k within those 5 years. you can also solo administer 401k plans even if you have an unincorporated business, so you can start one of those if you have any other form of cashflow, and there may be a way to get the other plan rolled into your solo one.  http://www.irs.gov/publications/p560/ch04.html#en_US_publink10009053
If your employer does not offer contribution matching, and you don't like the range of investment options provided by the company 401k, then you probably are better off investing in your own IRA instead.  In an IRA held at a bank or brokerage, you can invest in multiple stocks or funds and move money around within the IRA pretty freely in most cases. If your company is doing well and is actually sharing profit into the 401k, you might consider leaving your 5% contribution to the 401k where it is and put the other 5% you are planning to contribute into a new IRA of your own.  This straddles the risk of you losing money if your company 401k tanks (or profit sharing dries up) and your missing out on profit sharing if it continues to pay well. Use a compound interest calculator to project the difference with ETFs in the S&amp;P 500 (or the asset mix of your choosing), and subtract the expected pension amount. If the difference is positive, or around around even, I would do it to avoid the risk of company failure. Start with the tax delta. For example, you'd hope to deposit at 25% bracket, but take withdrawals while at a marginal 15%. In this case, you're 10% to the good with the 401(k) and need to look at the fee eating away at this over time. Pay an extra 1%/yr and after 10 years, you're losing money. That's too simple, however. Along the way, you need to consider that the capital gain rate is lower than ordinary income. It's easier to take those gains as you wish to time them, where the 401(k) offers no flexibly for this. Even with low fees, this account is going to turn long term gains to ordinary income. (Note - in 2013, a couple with up to $72,500 in taxable income has a 0% long term cap gain rate. So, if they wish, they can sell and buy back a fund, claim the gain, and raise their cost basis. A tiny effort for the avoidance of tax on the gains each year.) First paragraph, don't forget, there are the standard deduction, exemption, and 10% bracket. While you are in the range to save enough to create he income to fill the low end at withdrawal, there's more value than just the 10% I discussed earlier.  Last, there's a phenomenon I call The Phantom Tax Rate Zone when one's retirement withdrawals trigger the taxation of Social Security.  It further complicates the math and analysis you seek. Stuff I wish I had known, based on having done the following: Obtained employment at a startup that grants Incentive Stock Options (ISOs);  Early-exercised a portion of my options when fair market value was very close to my strike price to minimize AMT; made a section 83b) election and paid my AMT up front for that tax year. All this (the exercise and the AMT) was done out of pocket. I've never see EquityZen or Equidate mention anything about loans for your exercise. My understanding is they help you sell your shares once you actually own them. Stayed at said startup long enough to have my exercised portion of these ISOs vest and count as long term capital gains;  Tried to sell them on both EquityZen and Equidate with no success, due to not meeting their transaction minimums.  Initial contact with EquityZen was very friendly and helpful, and I even got a notice about a potential sale, but then they hired an intern to answer emails and I remember his responses being particularly dismissive, as if I was wasting their time by trying to sell such a small amount of stock. So that didn't go anywhere. Equidate was a little more friendly and was open to the option of pooling shares with other employees to make a sale in order to meet their minimum, but that never happened either.  My advice, if you're thinking about exercising and you're worried about liquidity on the secondary markets, would be to find out what the minimums would be for your specific company on these platforms before you plunk any cash down. Eventually brought my request for liquidity back to the company who helped connect me with an interested external buyer, and we completed the transaction that way. As for employer approval - there's really no reason or basis that your company wouldn't allow it (if you paid to exercise then the shares are yours to sell, though the company may have a right of first refusal). It's not really in the company's best interest to have their shares be illiquid on the secondary markets, since that sends a bad signal to potential investors and future employees. "The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary.  As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at ""total compensation"". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match.  Note - Keith thanks for catching and fixing one typo, I just caught another." "You have a few options: Option #1 - Leave the money where it is If your balance is over $5k - you should be able to leave the money in your former-employer's 401(k). The money will stay there and continue to be invested in the funds that you elect to invest in. You should at the very least be receiving quarterly statements for the account. Even better - you should have access to some type of an online account where you can transfer your investments, rebalance your account, conform to target, etc. If you do not have online account access than I'm sure you can still transfer investments and make trades via a paper form. Just reach out to the 401(k) TPA or Recordkeeper that administers your plan. Their contact info is on the quarterly statements you should be receiving. Option #2 - Rollover the money into your current employer's 401(k) plan. This is the option that I tend to recommend the most. Roll the money over into your current employer's 401(k) plan - this way all the money is in the same place and is invested in the funds that you elect. Let's say you wanted to transfer your investments to a new fund lineup. Right now - you have to fill out the paperwork or go through the online process twice (for both accounts). Moving the money to your current-employer's plan and having all the money in the same place eliminates this redundancy, and allows you to make one simple transfer of all your assets. Option #3 - Roll the money from your former-employer's plan into an IRA. This is a cool option, because now you have a new IRA with a new set of dollar limits. You can roll the money into a separate IRA - and contribute an additional $5,500 (or $6,500 if you are 50+ years of age). So this is cool because it gives you a chance to save even more for retirement. Many IRA companies give you a ""sign on bonus"" where if you rollover your former-employers 401(k)...they will give you a bonus (typically a few hundred bucks - but hey its free money!). Other things to note: Take a look at your plan document from your former-employer's 401(k) plan. Take a look at the fees. Compare the fees to your current-employer's plan. There could be a chance that the fees from your former-employer's plan are much higher than your current-employer. So this would just be yet another reason to move the money to your current-employer's plan. Don't forget you most likely have a financial advisor that oversees your current-employer's 401(k) plan. This financial advisor also probably takes fees from your account. So use his services! You are probably already paying for it! Talk to your HR at your employer and ask who the investment advisor is. Call the advisor and set up an appointment to talk about your retirement and financial goals. Ask him for his advice - its always nice talking to someone with experience face to face. Good luck with everything!" I completely agree with Pete that a 401(k) loan is not the answer, but I have an alternate proposal: Reduce your 401(k) contribution down to the 4% that you get a match on.  If you are cash poor now and have debts to be cleaned up, those need to be addressed before retirement savings.  You'll have plenty of time to make up the lost savings after you get the debts paid off.   If your company matches 50% (meaning you have to contribute 8% to get the 4% match), then consider temporarily stopping your 401(k) altogether. A 100% match is very hard to give up, but a 50% match is less difficult.  You have plenty of years left ahead of you to make up the lost match.  Plus, the pain of knowing you're leaving money on the table will incentivize you to get the loans paid as quickly as possible.  It seems to me that I would be reducing middle to high interest debt while also saving myself $150 per month.  No, you'd be deferring $150 per month for an additional two years, and not reducing debt at all, just moving it to a different lender. Interest rate is not your problem.  Right now you're paying less than $30 per month in interest on these 3 loans and about $270 in principal, and at the current rate should have them paid off in about 2 years.  You're wanting to extend these loans to 4 years by borrowing from your retirement savings.   I would buckle down, reduce expenses wherever possible (cable? cell phone? coffee? movies? restaurants?) until you get these debts paid off.  You make $70,000 per year, or almost $6,000 per month.  I bet if you try hard enough you can come up with $1,100 fairly quickly. Then the next $1,200 should come twice as fast. Then attack the next $4,000. (You can argue whether the $1,200 should come first because of the interest rate, but in the end it doesn't matter - either one should be paid off very quickly, so the interest saved is negligible) Maybe you can get one of them paid off, get yourself some breathing room, then loosen up a little bit, but extending the pain for an additional two years is not wise. Some more drastic measures: There is Free employer money on both sides of the tax fence for some employees.   On the pretax side, your employer may provide you a match.  If so, invest the maximum to get 100% of the match.   On the after tax side, many companies offers a 15% discount on ESPP plans and a one year hold.  My wife has such an employer.  The one year hold is fine because it allows us to be taxed at Long Term Capital gains if the stock goes up which is lower than our current income bracket.  After creating a seasoned pool of stocks that we could sell after the one year hold, we are then able to sell the same number of stocks purchased each month.  This provides a 17.6% guaranteed gain on a monthly basis.  How much would you purchase if you had a guaranteed 17.6% return.  Our answer is 15% (our maximum allowed). The other trick is that while the employer is collecting the money, you will purchase the stock at the lowest day of the period.  You will usually sell for even more than the purchase price unless the day purchased was the lowest day of month.   The trick is to reinvest the money in tax free investments to balance out the pretax investing.  Never leave the money in the plan.  That is too much risk. If your plan permits loans, deposit enough through the year to maximize the match and then take a loan from the plan. Use the loan portion to pay your student loan. Essentially you have refinanced your debt at a (presumably) lower rate and recieved the match. You pay yourself back (with interest) through your payroll. The rates are typically the prime rate + 1%. The loans are subject to a lesser of 50% vested account balance or $50,000 provision. "Your initial plan (of minimizing your interest rate, and taking advantage of the 401(k) match) makes sense, except I would put the 401(k) money in a very low risk investment (such as a money market fund) while the stock market seems to be in a bear market.  How to decide when the stock market is in a bear market is a separate question. You earn a 100% return immediately on money that receives the company match -- provided that you stay at the company long enough for the company match to ""vest"".  This immediate 100% return far exceeds the 3.25% return by paying down debt. As long as it makes sense to keep your retirement funds in low-risk, low-return investments, it makes more sense to use your remaining free cash flow to pay down debts than to save extra money in retirement funds. After setting aside the 6% of your income that is eligible for the company match, you should be able to rapidly pay down your debts.  This will make it far easier for you to qualify for a mortgage later on.  Also, if you can pay off your debt in a couple years, you will minimize your risk from the proposed variable rate.  First, there will be fewer chances for the rate to go up.  Second, even if the rate does go up, you will not owe the money very long." If you leave your employer at age 55 or older, you can withdraw with no penalty. Mandatory 20% withholding, but no penalty. You reconcile in April, and may get it all back. If you are sub 55, the option is a Sec 72t withdrawal. The author of the article got it right. I am a fan of his. "Unless your 401(k) plan is particularly good (i.e. good fund choices with low fees), you probably want to contribute enough to get the maximum match from your employer, then contribute to an IRA through a low-cost brokerage like Vanguard or Fidelity, then contribute more to your 401(k). As JoeTaxpayer said, contributions to a Roth IRA can be withdrawn tax- and penalty-free, so they are useful for early retirement. But certainly use your 401(k) as well--the tax benefits almost certainly outweigh the difficulty in accessing your money. JB King's link listing ways to access retirement money before the traditional age is fairly exhaustive. One of the main ways you may want to consider that hasn't been highlighted yet is IRS section 72(t) i.e. substantially equal periodic payments (SEPP). With this rule you can withdraw early from retirement plans without penalties. You have a few different ways of calculating the withdrawal amount. The main risk is you have to keep withdrawing that amount for the greater of five years or until you reach age 59½. In your case this is is only 4-5 years, which isn't too bad. Finally, in addition to being able to withdraw from a Roth IRA tax- and penalty-free, you can do the same for Roth conversions, provided 5 years have passed. So after you leave a job, you can rollover 401(k) money to a traditional IRA, then convert to a Roth IRA (the caveat being you have to pay taxes on the amount as income at this point). But after 5 years you can access the money without penalty, and no taxes since they've already been paid. This is commonly called a ""Roth conversion ladder""." All other things being equal, you might be better off contributing to a IRA that is a brokerage account.  You will have lots of flexibility in your investments and there would probably not be fees for the account itself.  You might incur commissions for trading and/or owning mutual funds that are charged by the funds themselves.   You won't be able to borrow from an IRA, as opposed to a 401K.  IMHO, that is a good thing. Are you suggesting that you would withdraw early from a retirement account?  You'd probably be better off not doing that.  Assuming a large salary, you would be paying 43% to withdraw your money early.  Would you accept a loan at 43% interest?   You are probably better off not putting the money in in the first place to accomplish your goals, then withdrawing it early. Most people opt for a 401K for two reasons.  The company match and ease of investment make a compelling argument.  Keep in mind if a 401K is available to you, regardless if you particpate, you start phasing out your IRA deduction at 60K a year (single) or 96K (married).  Given your huge salary comments I imagine an IRA would not be an option in your scenario. Given that, if you leave a job, you can roll your 401K balance into a trading account. Specifically on the subject of maxing out your 401k, there are several downsides: The employer match usually only applies to the first 6%. Some employers offer no match at all. You listed the match as a pro, but I think it should be pointed out that you can usually get this benefit without maxing out your plan. The investment options are limited. Usually there is at least one fund available from all the common investment classes, but these may not be your preferred funds if you were able to choose for yourself. Fees can be very high. If you are working for a small to medium size company, the fees for each fund will often be higher than for the same funds in a plan offered by a large company. Fees are usually related to the dollar amount of assets under management. Each person has a different tax situation, so if you are single and making 6 figures, you might still be in the 25% bracket even after maxing out your 401k, but the same person filing jointly with a spouse that makes less could get down to the 15% bracket with a smaller contribution. I meet my retirement savings goals without maxing out the 401k. As long as the amount is above the employer match amount, my second priority is to funnel as much money as possible in to my IRA (because I get lower fees and better investment options from Vanguard). Here's my thoughts on the subject: