Vesting
The process of earning full ownership of employer-provided money or benefits, such as matching contributions, over time.
What it means
Vesting determines how much of an employer’s contributions a worker gets to keep if they leave. Money an employee contributes from their own paycheck is always 100% vested. Employer contributions, such as a match or profit-sharing, may vest gradually under a schedule.
A cliff schedule gives nothing until a set number of years, then everything at once. A graded schedule vests a growing percentage each year. Federal law limits how long employers can make workers wait, and plans can be more generous than the maximum. Pensions and stock awards also commonly vest.
Example
Suppose a plan vests employer matching contributions at 25% per year over four years. A worker who leaves after two years with $8,000 in matching money keeps 50%, or $4,000, and forfeits the other $4,000.
How it’s used
- Deciding when to change jobs
- Comparing benefits between employers
- Understanding a pension or stock award
Good to know
- Check the plan’s summary for the exact schedule; leaving shortly before a vesting date can cost real money.
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.