What Does It Mean to Be Vested in My 401(k)?

infographic. title text says "what does it mean to be vested in my 401(k)." Defines vested: "Vested is a term used to determine how much of your 401(k) funds you can take with you when you leave your company."

The Balance

You know that you should contribute to your 401(k) on a regular basis and that you should match your employer's contribution. You might even know that you should invest more aggressively when you're young, then adjust to a more conservative approach as you near retirement age. But do you know what it means to be "vested" in your 401(k)?

Key Takeaways

  • Employers often "match" your savings to a company 401(k) plan, contributing as much as you do.
  • Your employer's vesting policy determines how much of your employer's contributions you can take with you if you separate from your company and leave employment.
  • You must usually wait from three to seven years before you're fully vested so you have access to all the money in the plan.
  • Employers use vesting schedules to discourage employees from moving on to new jobs.

The Definition of Vested

Vested is a term that's used to determine how much of your 401(k) funds you can take with you if you leave your company. Vesting refers to the ownership of your 401(k).

All the money that you personally have contributed to your 401(k) is yours and you can take it with you if you leave your position, but the terms may be a bit different when it comes to your employer's match of that money. Many employers set up vesting guidelines to control what they contribute to their employees' 401(k)s.

Many companies' policies range from three to seven years before you're fully vested in your 401(k) so you can take your employer's contributions with you, too, if you leave your job. Some may allow you to be vested for a percentage of that amount, which increases each year until you reach the maximum amount.

What Happens If I Leave Before I Am Fully Vested in My 401(k)?

Let's say you have a plan that increases the amount you're vested in it by 20% each year. This is known as "graded vesting." You will be fully vested (the employer-matching funds will belong to you) after five years at your job. You'll be 60% vested if you leave your job after three years. You'll be entitled to 60% of the amount of money that your employer has contributed to your 401(k).

If your employer doesn't have a plan that increases your vested amount each year, but you instead become fully vested when you're at the company for a certain period of time, you'll lose all the money that your employer has contributed to your 401(k) plan if you leave before that period is up.


Be sure to familiarize yourself with your employer's vesting policy, or it could cost some significant money. You may even consider staying at your job longer than you originally planned in order to give your 401(k) time to fully vest.

Why Do Employers Have Vesting Policies?

Employers use vesting policies to encourage the longevity of their employees. Many employees will stay in their jobs until they're fully vested in their 401(k)s in order to gain the most financial benefit.

It's always important to consider the financial impact of a new job for this reason. You may be willing to take the hit on your 401(k) balance if your salary is going to increase significantly due to changing jobs, especially if you've only been with the company for a year or two. But it may be more beneficial to wait a few months or even a year to allow your 401(k) to become fully vested before switching jobs if you're close to the point of that happening.

How Can I Determine What Guidelines Affect Me?

Speak with your employer's human resources department to be sure you fully understand the vesting policies of your company. They should be able to explain your company's policy and schedule. This can help you to make the most of your retirement contributions and accounts and it can also help you determine the right time to begin looking for a new job.

Does Vesting Affect How Much I Should Contribute to Retirement?

You should aim to contribute 10% to 15% of your income to retirement. This total can include your employer match. You should aim to contribute at least the same amount that your employer matches if 10% to 15% is a bit out of your reach. Your employer's match is basically free money. 


You may want to increase your contributions to cover the loss if you change jobs if you know that you're going to leave your position before your 401(k) is fully vested.

Should I Take Advantage of My Employer Match Even If I'm Planning To Leave?

It never hurts to sign up and take advantage of the employer match, even if you're not planning on staying at your job long enough to become fully vested in your 401(k). You may end up staying at your job longer than you originally planned, and you may end up being able to keep some of that money for your retirement.

And remember: When it comes to retirement, it's always better to save more rather than less. Your future self will thank you.

Frequently Asked Questions (FAQs)

Who regulates 401(k) vesting?

Employers can determine most 401(k) plan details at their will, but there are some minimum standards enacted by the Employee Retirement Income Security Act of 1974 (ERISA) and enforced by the U.S. Department of Labor. ERISA mandates that employees receive the most important plan information in writing, and vesting schedules would qualify as important plan information.

What is a vesting schedule?

A vesting schedule describes what an employee has to do to be fully vested. These guidelines let employees know how long it will take to become fully vested in their 401(k) plan. If employees become more vested in their 401(k) over time rather than fully vested all at once, the vesting schedule will detail this gradual progression toward being fully vested.

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  1. IRS. "Retirement Topics - Vesting."

  2. U.S. Department of Labor. "Plan Information."

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