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By Ian Berger, JD
IRA Analyst

If you’re thinking about leaving your job, you may want to inquire about your company retirement plan’s vesting schedule. If you are close to becoming vested in a retirement benefit, it may pay to stick it out until you have enough service to become vested. Otherwise, you may lose out on a valuable benefit.

Being fully vested in your benefit means that you have earned a benefit that cannot be taken away from you. If you are partially vested, you will receive only a portion of your benefit. If you are 0% vested, you will receive no benefit at all. The unvested portion of your benefit will be forfeited in the case of a partially-vested or 0%-vested benefit.

Defined contribution plans.

  • Employee contributions (pre-tax deferrals, Roth contributions and after-tax contributions), and earnings on those contributions, are immediately 100% vested.
  • Employer contributions, and associated earnings, are vested depending on the type of plan. Employer contributions made to SEP and SIMPLE IRA’s are immediately 100% vested. Employer contributions to 401(k) or 403(b) plans (including matching contributions) can be immediately 100% vested or subject to a vesting schedule.
  • If your plan uses a vesting schedule, you will be credited with a year of vesting service under the plan’s rules (generally, if you work at least 1,000 hours in a 12-month period). A vesting schedule can be either “cliff vesting” or “graded vesting,” as follows:


Years of Service                    Cliff Vesting                       Graded Vesting


1                                         0%                                        0%

2                                         0                                          20

3                                      100                                         40

4                                      100                                         60

5                                      100                                         80

6                                      100                                       100

Example: Suppose Anna participates in a 401(k) plan with a graded vesting schedule for employer contributions. She leaves her employer after four years of service and with $15,000 in her elective deferral sub-account and $4,000 in her employer contribution sub-account. She will receive a total distribution of $17,400, which represents her full elective deferral sub-account ($15,000) and 60% of her employer contribution sub-account ($2,400). The unvested portion of her employer contribution sub-account ($1,600) will be forfeited.

Defined benefit plans. Most defined benefit plans use a 5-year cliff vesting schedule under which benefits become 100% vested after five years of service.

Full vesting required. Benefits must become 100% vested, regardless of your years of service, when you reach the plan’s “normal retirement age” (typically age 65) or when the plan terminates. Many plans also provide for 100% vesting if you die or become disabled.

IRAs. Vesting rules don’t apply to IRAs. You are always entitled to receive the full value of your IRA.


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