Vesting
The process of earning the right to keep your employer's contributions to your retirement account. Leave too early and you forfeit some.
Vesting refers to your ownership of employer contributions in a retirement account. Your own contributions are always 100% yours — the moment they go in, they're yours. The employer's matching contributions may have a vesting schedule attached.
Common vesting schedules:
- Immediate: 100% vested on day one. The match is yours instantly. Best case.
- Cliff (e.g. 3-year cliff): 0% vested for the first 3 years, then 100% vested on the 3rd anniversary. Leave on day 1,094 and you forfeit everything; leave on day 1,096 and it's all yours.
- Graded (e.g. 5-year graded): 20% vested after year 1, 40% after year 2, and so on until 100% after year 5.
If you're job-hopping and have unvested employer contributions, factor that into the timing. Leaving a week before a vesting milestone is genuinely costing you money.
Your own contributions and any growth on them — including growth on the unvested employer portion — are not subject to vesting. Only the principal of the employer match is at stake.
See also
- Employer match — Money your employer contributes to your retirement account on top of your own contributions, usually as a percentage of your salary.
- 401(k) — A US employer-sponsored retirement account. Contributions come out pre-tax, grow tax-deferred, and most employers offer a matching contribution.
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