New job. No access to 401(K) for 12 months!

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Topic Author
Mill
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Joined: Tue Dec 22, 2009 7:04 pm
Location: Arkansas

New job. No access to 401(K) for 12 months!

Post by Mill »

I am starting a new job as a lower-level manager with a medium sized employee-owned company. All employees are allowed to buy company stock (taxable) at a 15% discount. Employees may then sell after 1 year. This sounds like a pretty good deal to me, so I am thinking about maximizing this opportunity ($300 per month).

I normally wouldn't buy company stock, but I think the discount and the ability to sell after only 1 year makes this opportunity worth it. My stock net worth is almost $200,000 so $3600 of company stock held at any one time in the future probably doesn't make much difference in volatility or asset allocation.

Unfortunately employees can not participate in the company 401(K) until they have 12 months of service. I have asked my hiring manager if there is any way I may bypass this waiting period, and he said he would look into it, but I haven't heard anything more about this in a few weeks now. This company has a lot of turnover with its individual contributors, so that may be a factor for the 12-month waiting period? Otherwise, Im not sure why a company would block people from participating for 12 months. Once eligible to contribute, the 401(k) has a 2% match at 50 cents on the dollar paid in company stock.

2 part question...

-The ability to buy company stock at a discount and sell after 12 months seems like a good deal to me, and Im probably going to do it. Considering the BH philosophy, is this a good idea, or is there anything I am missing?

-If I am not able to bypass the 401(K) waiting period, how should I continue to fight this battle? Finding the right person to talk to is the first step. I don't really even care about the company match, I just want to tax-defer some income. Has anyone had any experience with a similar situation? Any general advice with this would be much appreciated.

Thanks!

Mill
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yatesd
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Re: New job. No access to 401(K) for 12 months!

Post by yatesd »

I would buy the stock just because it would need to lose 15% before it mattered to you.

Two thoughts:

- Does the company seem headed for growth and financially sound?
- How long do you need to keep the money invested?

On the 401K issue, I doubt they would make an exception. I would see what kind of IRA options you could leverage. Also, consider iBonds for their tax deferral benefits.
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KlingKlang
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Re: New job. No access to 401(K) for 12 months!

Post by KlingKlang »

Since this is an employee-owned company I assume that the stock is not publicly traded. Who sets the stock price? Is there a history of the stock price so that you can check how volatile it is? Are there any fees or commissions associated with buying or selling the stock? Once you are a stock owner, the value of your shares will be diluted when new shares are created for other peoples’ 401(k) match. Do the executives get their bonuses in company stock? That would result in more dilution of your shares’ value.

If you are under the age of fifty you can contribute up to $5500/year total to Traditional IRA and Roth IRA accounts. Check your income against the IRS limits for each type of IRA.
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beyou
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Re: New job. No access to 401(K) for 12 months!

Post by beyou »

Speaking as a hiring manager myself, we just love to hire new people who ask for special favors against company policy. :annoyed
What have you done for your manager to prove yourself yet ? Difficult to do if you are only there a short time.
That may have something to do with the policy.

Be diligent, and put the remaining after-tax money you would have deferred, into a taxable account, instead of spending it.
leonard
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Re: New job. No access to 401(K) for 12 months!

Post by leonard »

Mill wrote:I am starting a new job as a lower-level manager with a medium sized employee-owned company. All employees are allowed to buy company stock (taxable) at a 15% discount. Employees may then sell after 1 year. This sounds like a pretty good deal to me, so I am thinking about maximizing this opportunity ($300 per month).

I normally wouldn't buy company stock, but I think the discount and the ability to sell after only 1 year makes this opportunity worth it. My stock net worth is almost $200,000 so $3600 of company stock held at any one time in the future probably doesn't make much difference in volatility or asset allocation.

Unfortunately employees can not participate in the company 401(K) until they have 12 months of service. I have asked my hiring manager if there is any way I may bypass this waiting period, and he said he would look into it, but I haven't heard anything more about this in a few weeks now. This company has a lot of turnover with its individual contributors, so that may be a factor for the 12-month waiting period? Otherwise, Im not sure why a company would block people from participating for 12 months. Once eligible to contribute, the 401(k) has a 2% match at 50 cents on the dollar paid in company stock.

2 part question...

-The ability to buy company stock at a discount and sell after 12 months seems like a good deal to me, and Im probably going to do it. Considering the BH philosophy, is this a good idea, or is there anything I am missing?

-If I am not able to bypass the 401(K) waiting period, how should I continue to fight this battle? Finding the right person to talk to is the first step. I don't really even care about the company match, I just want to tax-defer some income. Has anyone had any experience with a similar situation? Any general advice with this would be much appreciated.

Thanks!

Mill
Obviously - you asked HR about this and they told you about the 1 year waiting period before you took the job. What was their response. Didn't you negotiate this point before taking the job. what was their response to those negotiations.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
MichDad
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Re: New job. No access to 401(K) for 12 months!

Post by MichDad »

Here's an idea that helps if you feel you won't be able to pay-in the maximum $17,500 (or perhaps higher) 401(k) plan contribution for 2015. Start saving that money now for the twelve months you will not be in your company's 401(k) plan. When you become eligible twelve months from now, make the highest contributions you can from each pay check. Even if your take-home pay is tiny (or zero), you'll be able to fall back on the money you've saved during this first twelve month period to make you whole.

MichDad
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Watty
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Re: New job. No access to 401(K) for 12 months!

Post by Watty »

Part of your problem with the 401K is that you are starting right at year end so you will likely be completely locked out of it for all of 2014. If were starting in the middle of the year then you would only be locked out half of 2014 and 2015 so that you could make larger contributions there. Realistically you should have just taken this into account in deciding if that was a good offer or not.

If you will have any paychecks from your old employer in 2014 then you may be able to have most of that put into your old 401K.

Most likely you are just out of luck on the 401k since they are unlikely to be able to change the rules for just one person even if they wanted to. If you are a very senior person then you might have been able to negotiate some sort of one time bonus the first year to make up for this but it sounds like it is too late for that.

Check on the details of the stock purchase program. I was once in a program like that where the actual stock purchase took place every six months and got it at a discount of the stock price from the beginning or end of the six month period, whichever was lower so that was a very good deal.
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ruralavalon
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Re: New job. No access to 401(K) for 12 months!

Post by ruralavalon »

Don't "fight" with a new employer about any benefit.

For the 12 months you are not eligible for the 401k, consider this:
$5.5k into a traditional or Roth IRA.
$10k into I-bonds.
Last edited by ruralavalon on Thu Dec 26, 2013 1:43 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Bfwolf
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Re: New job. No access to 401(K) for 12 months!

Post by Bfwolf »

Keep in mind that if you are not included in a company retirement plan, then there is no income limit for contributing pre-tax to a traditional IRA. So at least that's $5,500 of pre-tax savings you can do next year.
Geologist
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Re: New job. No access to 401(K) for 12 months!

Post by Geologist »

Many corporations have had 12 month waiting periods for investing in the 401(k). Generally, this is a set policy and it can't be waived just because a new employee would like it. The summary plan description surely describes the policies. A former employer of mine was like this, although they have dropped the waiting period now, I think.

As others have said, however, there is nothing terrible about investing in a taxable account. Remember that at some future point, you may want to convert traditional 401(k) or IRA money into Roth status and you will want funds in a taxable account to pay the conversion taxes.
cherijoh
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Re: New job. No access to 401(K) for 12 months!

Post by cherijoh »

I think it is more common not to get any matching in the first 12 months rather than not being able to participate at all. But maybe for small companies they have to pay a one-time set-up fee to their 401K provider for each new participant?

But it is a concern that they have high turnover with individual contributors. Did you get any feel for why that is?
Topic Author
Mill
Posts: 245
Joined: Tue Dec 22, 2009 7:04 pm
Location: Arkansas

Re: New job. No access to 401(K) for 12 months!

Post by Mill »

OP here.

Thanks for all the responses. Consensus seems to be to go ahead and buy the discounted company stock, (assuming no fees/commissions/other unforeseen drawbacks) and not worry about the 401(K). I am new to the company, its early in my career and I don't want to make waves at this point.

Special thanks to blevine and Michdad for the interesting perspectives.
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