Vesting

Vesting refers to the process by which employees earn the right to keep employer-contributed funds in their retirement accounts. Your own contributions are always 100% vested, but employer contributions may require years of service before you own them completely.

Types of Vesting Schedules:

Type	How It Works
Immediate	100% vested from day one
Cliff	0% until cliff date, then 100%
Graded	Gradual increase over time

Common Vesting Schedules:

Cliff Vesting Example (3-year):

Years of Service	Vested %
0-2	0%
3+	100%

Graded Vesting Example (6-year):

Years of Service	Vested %
1	0%
2	20%
3	40%
4	60%
5	80%
6	100%

What Counts as Service:

• Generally, 1,000+ hours worked in a 12-month period = 1 year of service
• Some plans count from hire date, others from plan entry
• Military leave typically counts
• Leaves of absence may or may not count

What's Subject to Vesting:

• Employer matching contributions
• Employer profit-sharing contributions
• Employer discretionary contributions
• Stock options/RSUs (different vesting rules)

Always 100% Vested:

• Your own 401(k)/403(b) contributions
• Your IRA contributions
• Rollover contributions

Vesting Example:

• Employer match: $10,000 total contributed
• Vesting: 60% (4 years into 6-year graded)
• You own: $6,000 (would forfeit $4,000 if you leave)

Impact of Leaving Job:

• Unvested amounts are forfeited
• Forfeited funds typically go back to employer plan
• May be used to reduce future employer contributions

Strategic Considerations:

• Know your vesting schedule before job changes
• Calculate value of unvested benefits
• Sometimes worth staying few extra months to vest
• Factor into compensation comparison between jobs