What Are the Different Types of Vesting Schedules?
Cliff vesting means you own 0% of employer contributions until a specific date — often two or three years — at which point you become 100% vested. Graded vesting gradually increases your ownership percentage over several years (e.g., 20% per year over five years). Immediate vesting means all contributions are yours from day one. Your plan documents will specify which schedule applies.
How Does Vesting Affect Your Decision to Change Jobs?
Leaving a job before you're fully vested means forfeiting unvested employer contributions. For example, if your employer contributed $10,000 and you're 60% vested when you leave, you walk away with $6,000 — the rest goes back to the employer. Timing a job change to occur after a vesting milestone can be worth thousands of dollars, so always check your vesting status before resigning.
Does Vesting Apply to All Employer Contributions?
Not always. Some employers offer immediate vesting on all contributions, which is a competitive benefit. Others apply vesting only to matching contributions, not profit-sharing or other contributions. Your own 401(k) deferrals are never subject to vesting — they belong to you immediately. Review your Summary Plan Description (SPD) for your plan's specific vesting rules.
Frequently asked questions
What happens to unvested funds when I leave my job?
Unvested employer contributions are forfeited when you leave. They are returned to the employer's plan and are often used to offset future employer contribution costs or reallocated to other plan participants, depending on the plan document.
Is service time with a previous employer counted toward vesting?
Generally no — vesting is based on service with your current employer. However, if your new company acquires your old one, prior service may count. Some employers also credit prior service periods as part of their hiring terms.