Navigating 401(k) Vesting: What You Need to Know Before Changing Jobs

What Is 401(k) Vesting?

• A 401(k) vesting schedule determines how much of your employer’s contributions (such as matching funds) you own over time.

• When you contribute to your 401(k), that money is always yours. However, employer contributions may be subject to vesting rules.

• Vesting schedules typically have a gradual progression, meaning you become more vested over time.

Types of Vesting Schedules:

1. Cliff Vesting:

• With cliff vesting, you become fully vested after a specific period (e.g., 3 years).

• If you leave your job before the cliff period, you forfeit any unvested employer contributions.

2. Graded Vesting:

• Graded vesting allows partial vesting over time.

• For example, after 2 years, you might be 20% vested, and it increases gradually each year.

Impact When Changing Jobs:

• If you switch jobs before full vesting:

• You keep your contributions (what you put in).

• You may lose some or all of your employer’s contributions based on the vesting schedule.

• Leaving early could mean forfeiting a portion of your retirement savings.

Example:

• Suppose you have a 401(k) with $6,000 in your contributions and your employer contributed $10,000.

• If you’re 60% vested, you’d keep your $6,000 plus 60% of the employer’s $10,000 (i.e., $6,000).

• Total retained: $6,000 + $6,000 = $12,000

Remember, consider your vesting status when evaluating job changes. Sometimes that raise might not be worth losing vested retirement funds! 🌟