Key Points
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Most 401(k)s have vesting schedules that determine when you’re eligible to keep your employer match.
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Quitting your job before you’re fully vested could cost you some or all of your match.
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Leaving some of your match behind could still be the right choice in some situations.
It’s easy to think of your 401(k) match as yours as soon as it shows up in your account, but if you’re a recent hire, that might not be true. Most 401(k) plans have vesting schedules that dictate when you’re allowed to keep your employer-matched funds if you leave the company.
Quitting before you’re fully vested can cost you some or all of your employer match. Here’s a closer look at how vesting schedules work and how to know if you’re fully vested in your plan.
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How 401(k) vesting schedules work
Each company sets its own rules regarding 401(k) vesting schedules, but they’re limited by what the government allows. You’ll have to check with your employer to see what its rules are.
There are two main types of vesting schedules: cliff and graded. Cliff vesting schedules require you to work for the company for a certain number of years (three maximum) before you’re allowed to keep any of your employer match if you leave the company. Graded vesting schedules gradually release your employer match to you over time. For example, you might get to keep 20% after one year, 40% after two years, and so on. Graded vesting schedules can stretch out over six years.
If you’ve worked for your employer for at least six years, you should be fully vested in its plan. If you’ve worked there for a shorter time, check with your employer to learn when you will become fully vested in the plan.
What to do if you’re not fully vested in your 401(k) plan
Not being fully vested in your 401(k) isn’t a big deal unless you plan to leave the company soon. If you’re close to being fully vested, you may prefer to stick it out at your job for a bit longer so you can hold on to all of the employer-matched funds you’ve earned over the years.
When that’s not an option, weigh what you’re losing by forfeiting some of your match against what you’ll gain by switching to a new position. If the salary increase for your new job is substantial, that might be worth forfeiting a few thousand dollars of your 401(k) match. That choice is up to you.
When you take your new position, make sure to inquire about your new company’s vesting schedule and whether there’s any waiting period before you’re able to start participating in the 401(k) plan. If there is, you may need to save in an IRA in the meantime.
Once you’re ready to participate in the new plan, check how much you need to contribute to get your full match, then divide that amount by the number of pay periods in the year. Do your best to claim the entire match whenever possible.
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