Vesting
The process of earning full ownership of employer-provided benefits like 401(k) matching contributions or stock options over time.
What You Need to Know
Vesting determines when employer contributions truly become YOUR money. Until you're fully vested, leaving the company means forfeiting some or all of those benefits.
401(k) Vesting: Your own contributions are always 100% vested (they're yours immediately). But employer matching contributions often vest over time:
Cliff Vesting:
- 0% ownership until year 3
- 100% ownership after 3 years
- Example: Leave at 2.5 years = lose all match
Graded Vesting:
- Year 1: 0%
- Year 2: 20%
- Year 3: 40%
- Year 4: 60%
- Year 5: 80%
- Year 6: 100%
Stock Option Vesting: Tech companies often use 4-year vesting with 1-year cliff:
- Year 1: 25% (cliff)
- Years 2-4: 2.08% per month
- Leave before 1 year = forfeit all options
Why It Matters: If your employer contributed $30,000 to your 401(k) over 5 years and you're only 60% vested when you leave, you only keep $18,000. The other $12,000 stays with the company.
Golden Handcuffs: Vesting schedules keep employees from job-hopping. Leaving before fully vested can cost tens of thousands.
Check Your Vesting: Review your 401(k) or stock plan documents to know exactly where you stand.
Sources & References
This information is sourced from authoritative government and academic institutions:
- dol.gov
https://www.dol.gov/general/topic/retirement/vesting
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Related Terms in Career & Income
AGI (Adjusted Gross Income)
Your total gross income minus specific deductions, used to determine tax liability and eligibility for credits.
After-Tax Income
Your take-home pay after federal, state, and payroll taxes are deducted—the actual money you can spend.
FICA (Federal Insurance Contributions Act)
Payroll taxes that fund Social Security and Medicare, totaling 7.65% of wages for employees (matched by employers).
Gross Income
Your total income before any taxes or deductions are taken out—the starting point for tax calculations.
Marginal Tax Rate
The tax rate applied to your last dollar of income—the rate you pay on additional earnings.
Standard Deduction
A fixed dollar amount that reduces your taxable income, available to all taxpayers who don't itemize.