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401(k) vesting

Any money that you put into your 401(k) is yours. But when it comes to employer match contributions, things work a little differently. To own any portion of your employer’s contributions, you’ll need to vest in your employer’s match contributions. Only once you’re fully vested in your employer’s retirement plan will you have full ownership of your company’s match. Here’s what you need to know about 401(k) vesting, and what it means for your retirement saving.

How 401(k) Vesting Works

Vesting, in retirement terms, is another word for acquiring ownership. The more you “vest” in your employer’s retirement plan, the greater ownership you have over the funds. Your contributions to your 401(k), on the other hand, are 100% vested as soon as you make them. So even if you invest in your 401(k) today and quit tomorrow, you can’t lose the money that you put into your 401(k). But to attain full ownership over your employer’s match contributions, you may need to work for the employer for a certain number of years.

Once your account is fully vested, you can take the company match with you when you retire or leave for another job. Your employer can’t forfeit or take back the funds for any reason. If you leave a position, voluntarily or otherwise, before the required number of years has elapsed, you may not receive all or any of your match funds. Different employee plans have different payout requirements.

401(k) Vesting Schedules

401(k) vesting

It usually takes between three and five years to become fully vested in your employer match contributions. Your ownership may gradually increase over time or you may become fully vested all at once.

Your vesting schedule outlines when you obtain ownership of your employer contributions. The schedule determines what you get depending on how many years you maintain employment. Some schedules may allow you to become fully vested immediately. Far more common, however, are predetermined schedules that define when an employee is vested.

Immediate Vesting

One option, immediate vesting, works exactly as it sounds: Your employer match is 100% vested as soon as you make a contribution. Sometimes employers offers a “safe harbor match,” which gives you 100% ownership over that part of the company contribution.

Cliff Vesting

With a cliff vesting schedule, your match won’t be vested at all for a defined period of time. Then, you become fully vested all at once. Once you’ve worked past the “cliff,” all employer match contributions are yours from that point forward. If you leave before that you work past the cliff, you cannot take any of the money that your company has added to your 401(k).

Graded Vesting

Graded vesting schedules allow you to keep a portion of your employer contributions based on how many years you have worked at the company. On each anniversary of your hiring, you granted greater ownership over your employer’s match contributions. Commonly, you’ll own 0% in your first year of an employment. Every year after that, you’ll gain an additional 20%, becoming fully vested by year six.

How to Find Your 401(k) Vesting Schedule

401(k) vesting

If you want to check your vesting schedule, reach out to your company’s benefits administrator or human resource manager. They should be able to explain the company’s vesting policy and schedule, and provide access to your plan summary or annual benefits statement. To find out exactly how much money from employer contributions you’d take with you if you left today, look at your latest 401(k) statement. Multiply the amount of your 401(k) balance attributable to employer contributions by your current vested percentage.

It’s important to be aware of your 401(k) vesting schedule to ensure you’re making the most of your retirement accounts. If you’re thinking about leaving your current job but you’re months away from being fully vested, you should time your departure accordingly.

The Bottom Line

Employers often couple attractive match programs with a vesting schedule to encourage employee longevity. Knowing your policy can help you make the most of your retirement income. You should take advantage of employer match contributions even if you aren’t sure if you’ll stick around long enough to become fully vested. You may end up staying longer than expected, or you might at least get to keep a portion of your company’s match when switch jobs.

Of course, it’s best to stay at your job until you’re fully vested in the 401(k) match program. But, if you’re getting a big salary bump with a new job, it may be worth the loss. If you’re really close, you may want to wait and take advantage of the money your current employer is offering. When you do leave, make sure you handle your 4o1(k) properly in the process.

Tips for Saving for Retirement

  • To make sure you’re on track for retirement and budgeting properly, consider consulting an expert. SmartAsset’s financial advisor matching tool can help you find an advisor who can create a customized financial plan for you.
  • Make sure you have an idea of how much you’ll need to have saved to be able to retire comfortably so you can ensure you’re on track to hit that target.
  • Start saving early, and tuck away as much as you can. As our 401(k) calculator demonstrates, compound interest can work wonders for your retirement savings over time.

Photo credit: ©iStock.com/DNY59, ©iStock.com/IND_AND_I, ©iStock.com/demaerre

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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