Full Answer
Vesting refers to the ownership of your 401 (k). 1. While all the money that you personally have contributed to your 401 (k) is yours and will go with you if you choose to leave your position, the terms may be a bit different when it comes to your employer's match of that money.
If you don’t have full 401 (k) vesting, it follows that you will not own the entire amount in your retirement plan. You will only be entitled to the amount you contributed directly, and your employer’s matched contributions that are vested. There are two crucial points that you should always remember about vesting.
The # of years you have vested starts counting even before you start contributing towards a 401k plan.
Although the companies are at liberty to determine their vesting schedules, the IRS requires that all employees be vested fully after they attain their normal retirement age or when the employer decides to end the retirement plan.
However, the amount of money your employer contributes as a match may not be entirely yours right away. There is usually a definite period before which you can gain full ownership of the funds. In a retirement plan, vesting refers to ownership. It relates to a point in time where you can voluntarily leave or get fired by your employer but still get to retain the funds in your account.
But in 401 (k) vesting, you need to have worked for your employer for a specified period before you can own 100% of the matched contributions made by your employer.
If your company allows immediate vesting, you can leave your job today and still own 100% of the contributions you made yesterday and those matched by your employer.
Although some companies allow for immediate vesting, it is not a common occurrence among most employers. Many of them will only allow you to vest according to the rules set out in their pre-determined schedule. Most rules will demand that you work for the company for a specified amount of time before you can begin to vest. It means that you can’t quit today and necessarily expect to get the matching contributions you got yesterday. There are two common types of vesting schedules.
If you don’t have full 401 (k) vesting, it follows that you will not own the entire amount in your retirement plan. You will only be entitled to the amount you contributed directly, and your employer’s matched contributions that are vested.
The term vested is used to describe the sum of money that you own at a particular point in time, and which you are allowed to leave with should you voluntarily leave or get fired from your job. If the amount of money in your account is not vested, it is not considered yours at the time. And you can’t, therefore, take it with you when you leave.
401k vesting is the amount of time you MUST work for a company to fully accrue your 401k savings and not forfeit them (if you quit your job prematurely). Thus, when you are “fully vested”, this means you have accrued your 401k retirement savings fully and can rollover into an IRA incase you quit working for the company.