2 Times I'd Definitely Recommend Skipping Your 401(k) Match
Key Points
Claiming a 401(k) match doesn't make sense if it would create financial stress today.
Your 401(k) has a vesting schedule that determines when you can keep your company-matched funds.
If you don't plan to stay long enough to become fully vested, there's no point in chasing a 401(k) match.
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Claiming your 401(k) match is one of the most common pieces of retirement savings advice for good reason. By giving up a few thousand dollars today, your employer could give you a matching contribution that may be worth tens of thousands of dollars by the time you're ready to leave the workforce.
So it might seem strange to hear that there are actually times when you should skip your 401(k) match. But in the following two situations, it can really be to your advantage.
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1. You cannot afford to give up any of your paychecks today
A 401(k) match can improve your retirement readiness, but that's not much help when you're struggling to pay your bills. If you need every dime of your paycheck to cover your living expenses, it makes sense to skip your 401(k) match, or at least avoid claiming the entire thing.
Review your budget to identify areas where you can cut back on spending and, if possible, use any spare cash to claim at least part of your match each year. Even if it's only a few hundred dollars, that could be worth thousands by the time you're ready to retire.
If you get a raise, remember to increase your retirement contributions first. Otherwise, lifestyle creep may eat up the extra cash, leaving you with little to save again.
2. You plan to leave your employer soon and aren't fully vested
Your 401(k) likely has a vesting schedule, which determines how much of your employer-matched funds you're allowed to keep if you leave your job. Some companies offer immediate vesting, but it's more common to see a cliff or graded vesting schedule.
Cliff vesting schedules cause you to lose all of your match if you quit before you've worked for the company for a certain number of years. Graded vesting schedules give you gradual ownership over your employer matches, releasing a portion of them each year, but these types of vesting schedules can be up to six years in length, while cliff vesting schedules max out at just three years.
If you don't expect to remain with your employer long enough to become fully vested, then saving in your 401(k) to get the company match might not be worth it. You might have to turn around and hand your match right back to your employer when you quit.
But you're never in danger of losing your personal contributions, so it's still fine to put money here if you're just looking for a place to stash some savings. You could also put money in an IRA if you'd like more freedom to invest your savings however you'd like.
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