I was surprised to receive information on how to enroll in my employer’s 401k earlier this week. I assumed I wouldn’t be eligible to enroll since I’m not actively working there currently. The website did allow me to enroll though. The plan matches 100% for the first 3% contributed and 50% for the next 2%. I signed up for a 5% deduction to take full advantage of the match. I could have contributed up to 25% of my income but I decided not to since it will be difficult for me to contribute the full $5000 to my Roth IRA and I want to max out my Roth before making more 401k contributions.
This may not mean much though. I hope to work there this summer but I’m not sure how much or if I’ll be able to work there though. Getting a job that will give me legal experience is my first priority for this summer. If I still have time to work the pizza job then I will do that as well. If not there is no harm in signing up since it is free. My contributions and the employer match vest immediately so I’ll get that money even if I don’t work there after this summer. I think I can then just roll the money over into my Roth IRA but I need to check on that.
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If it’s a ROTH 401(k), you will be able to roll it into your ROTH IRA (but you’ll have to be officially terminated from employment first). If it’s a traditional 401(k), which most still are, you can roll it into a traditional IRA. If you want it to go into your ROTH, you’ll have to roll it into a Traditional first, then convert your Traditional IRA to a ROTH and pay the taxes for going from a pre-tax account to a tax-free account.
I hope that was clear 🙂