Vesting Schedules (i.e. when do you get your 401(k) match?)

Most people know about the employer match for 401ks.  What most people don’t know is that you are not entitled to that money right away.  You have to work for a certain amount of time before you get to take your employer match with you when you leave.  So when you put money into your 401k and your employer gives you a match, imagine them being put into separate accounts.  (I say “imagine” because they’re not actually in separate accounts.  But imagining that they are makes the concept a little easier to digest.)  The account that has just your money in it is 100% yours to take with you anytime you leave.  The account that has just your employer’s money in it has what’s called a vesting schedule – a schedule that tells you when you are entitled to that money.  Your employer’s vesting schedule is most likely either 2-6 year graded or 3 year cliff.

If it’s 2-6 year graded…

After you work there for:

2 years, you get 20% of the money in your “employer’s account”

3 years, you get 40%

4 years, you get 60%

5 years, you get 80 %

6 years, you get 100%

If it’s 3 year cliff…

You don’t get any of your employer’s money until you’ve worked there for 3 years.  But once you hit the 3 year mark, you get 100%.

Where can you find your company’s vesting schedule, you ask?  In the Summary Plan Description provided by your HR department.  Knowing this information is important because lets say you were thinking about quitting your job after being there for 5 and a half years.  If your company has a 2-6 year vesting schedule, you can get 100% of your employer match just by waiting 6 more months before you quit.

3 thoughts on “Vesting Schedules (i.e. when do you get your 401(k) match?)

  1. Pingback: Getting on-top of your finances – Where to start? | Millennial Finance

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