How Long to Be Vested in a 401k

by Mark Kennan, studioD

Knowing your vesting schedule helps you make better decisions regarding your 401k plan.

elderly,retirement image by Greg Pickens from

"Vested" in reference to a 401k plan refers to money that you get to keep if you leave your job. The amount of time it takes to be vested in your 401k plan contributions depends on whether you made the contribution or your employer made the contribution. Your employer can choose from different vesting methods to determine how long you have to work to be vested.

Your Contributions

You are always 100 percent vested in contributions that you make toward your own 401k plan, no matter how long you've worked at the company. For example, if you put in $1,000 from your first paycheck and then quit your job the next day, you get to keep that $1,000. Employers are not permitted to require you to work for a certain period of time before being vesting in your contributions.

Cliff Vesting

Cliff vesting refers to a vesting schedule that vests you completely in employer contributions after a certain number of years. However, before that time, you are not vested at all in the employer contributions. As of 2012, employers using a cliff-vesting schedule cannot require more than three years. Under this schedule, if you leave before three years, you don't get to keep any of the employer contributions. If you leave the day after you complete three years of service, you get to keep all the employer contributions.

Graded Vesting

Employers also have the option to use graded vesting. Under a graded-vesting schedule, you become vested in the employer contributions over time. For example, under IRS rules, employer must vest employees at a rate of at least 20 percent per year, beginning at the end of the second year. This means you're 100 percent vested after the sixth year. For example, if you leave after four years, you get to keep 60 percent of the employer contributions.

Plans May Accelerate Vesting

The IRS requirements are minimum vesting rates, not maximums, which means your employer may vest you in the employer contributions at a faster rate than required. For example, the employer could make you fully vested in employer contributions from your first day on the job or could use a graded vesting schedule that vests you at a rate of 25 percent per year. However, employers cannot use a slower vesting schedule than required by the IRS.

Photo Credits

  • elderly,retirement image by Greg Pickens from

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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