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Retirement plans are not a “one size fits all,” and there are a variety of programs for you to choose from. However, it is imperative to go over your specific employer’s retirement options and understand their particular requirements and how they match up with your specific goals. One of the essential criteria to make sure you fully understand is the retirement vesting schedule.

Retirement Vesting- What is it?

According to the IRS, “vesting” in retirement planning equals ownership, which means that at the end of each year, an employee will own (or vest) a certain percentage of their account that is in their retirement plan. However, how much money you vest depends on your employer and the specific retirement policy, as each may have their own vesting schedules.

When is your Money Vested?

When an employee’s account is 100% vested, this means that the employee owns 100% of their account, and the employer cannot take any of it back. However, if any amounts are not vested, these amounts can be forfeited. This forfeiture usually occurs when an employee leaves their employment (through quitting or getting fired) or when the employee does not work 500 hours during the year for five years.

Employee Contributions: The employee’s contributions to their plan are always 100% owned by them.
Employer Contributions: The employer vesting requirements depend on the type of plan that the employer offers. For example:

  1. 401(k)’s and Pensions: These two can have their own vesting schedules.
  2. Safe Harbor 401(k): Under the “safe harbor” provision, you will be 100% vested in the employer’s contributions.
  3.  Simple IRA’s and other IRA-based plans: All contributions to these plans are always 100% vested.

100% Vesting Requirement: Under federal law, when employees reach average retirement age, they must be 100% vested, under their plan. Additionally, they need to be 100% vested when their policy is terminated to receive all the benefits.

Types of Vesting Schedules

Depending on your employer, you may be facing two common types of vesting schedules- Graded Vesting and Cliff Vesting.

Graded Vesting: With this type of vesting schedule, you will keep a portion of your employers contribution, depending on how long you work for the employer. However, after six years, all the contributions from your employer will be 100% vested.
Cliff Vesting: Under this schedule, typically, if you decide to leave the company before you have worked there for three years, then you cannot take any of your employer’s contributions. If you worked there for more than three years, then you would be 100% vested and could receive all your employer’s contributions.

It is essential to understand your retirement packages. Knowing the requirements of each plan and the specific vesting schedules may mean the difference between making or losing thousands of dollars. It is also important to note that just because these amounts are vested, this does not mean you can cash them out immediately. By taking money out of your retirement plans too early, you can be faced with some stiff penalties. If you would like more information on retirement vesting or need help with your specific retirement plan, contact us today.

Have more questions about retirement administration? Schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with the retirement plan evaluator.


Retirement Topics – Vesting. (2019). IRS

What It Means to Be Fully Vested in a Retirement Plan. (2019). By Amanda Dixon. SmartAsset.

Learn About 401(k) Vesting and What it Means for You. (2019). By Dana Anspach. The Balance.