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Saving and investing basics

Vesting

How much of the money an employer puts in your retirement plan is yours to keep, which usually grows with your years of service.

What It Means

Vesting is ownership of the money in a workplace retirement plan. The money you contribute from your own paycheck is always 100% vested, so it's yours from the start. Money your employer adds, such as a match, can vest over time on a schedule set by the plan, and when you leave a job you keep only the vested share of it.

Try It: See How Much of the Match You'd Keep

Move the slider to your years of service. The example balance is $10,000 of employer match, under the two slowest schedules the IRS allows.

Years2
3-year cliff: vested0%You'd keep$0
6-year graded: vested20%You'd keep$2,000

Money you put in yourself is 100% yours at every step. Many plans vest faster than these two schedules.

How People Say It

  • "I'm not fully vested until next spring."
  • "If I leave now I lose half the match."
  • "Our 401(k) has a three-year cliff."

The Breakdown

The two minimum schedules for matching money, per the IRS

Years of service3-year cliff6-year graded
Under 20%0%
20%20%
3100%40%
4100%60%
5100%80%
6 or more100%100%

Worked example. Luis has $1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more,000 of employer match in his 401(k)401(k)A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit. See more after 2 years and gets a job offer. Under a 3-year cliff he'd keep $0 of it by leaving now, and all $10,000 if he stayed one more year. A 6-year graded schedule would let him keep $2,000 now and $4,000 after year 3. His own contributions come with him in full either way.

What the result means. A vesting date can be worth real money, so check yours before you set a last day. A plan may count years differently, and the plan's own summary says exactly how service is measured.

Where It Comes From

The two schedules apply to all employer contributions to defined contribution plans made after December 31, 2006, under the Pension Protection Act of 2006, according to the IRS.

Good to Know

The IRS sets the slowest a plan may vest employer matching money, and a plan may choose a faster schedule, including full vesting right away. Your own paycheck contributions are always 100% vested, according to the IRS. Look up your plan's schedule in its summary plan description or your benefitsBenefits packageEverything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year. See more portal, and note the date you move up a step.

FAQ

What does fully vested mean?

It means 100% of the employer money in your account is yours to keep, even if you leave the job. Your own contributions are fully vested from the start.

What's the difference between cliff and graded vesting?

Cliff vesting gives you nothing until a set date, then all of it; the IRS minimum is 100% after 3 years. Graded vesting gives you a growing share each year; the IRS minimum starts at 20% after 2 years and reaches 100% after 6.

What happens to the unvested money when I leave?

You keep only the vested share of employer contributions. The rest stays with the plan, which is why a vesting date is worth checkingChecking accountA bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit. See more before you resign.

Do It in Buhata

Countdown and Reminders

Save the date you reach each vesting step as a Countdown in Buhata, and add a Reminder a few weeks before it if you're weighing a job change.

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Related Terms and Categories

  • 401(k)

    A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit.

  • Roth 401(k)

    The Roth option inside a 401(k): you contribute after tax, and qualified withdrawals, earnings included, come out tax-free.

  • Rollover IRA

    An IRA opened to receive money moved out of a workplace retirement plan such as a 401(k), usually after leaving a job.

Saving and investing basics

Sources

Internal Revenue Service, "Retirement topics: Vesting"; IRS, "Issue Snapshot: Vesting schedules for matching contributions"

Last updated .