September 14, 2013
When your employer says your vesting period on your retirement account is 5 years, what does that mean?
When your employer says your vesting period on your retirement account is 5 years, what does that mean?
A vesting period of 5 years means that after 5 years you have a “right” to all of the money. IF you want to draw it out before that, you will not get the full total. Another way this is done is that a employer may tell their employee they must work for their company for 5 years before they have access to the money the company contributes to their retirement plan. It is a push for the employee to stay working for their company and if the employee decides to leave before 5 years–the company gets the money they contributed back.
Great answer, Macala! Let’s recap. When you first start at a company it is important to get a clear understanding of what benefits are available to you and that includes your company retirement plan. Ask about the vesting period.
5 years is generally the norm (remember now, we are talking about the companies matching money, not the money you have contributed, your contributions will always be yours). Sometimes it is nothing or partial. Nothing means you must be there for 5 years or you get squat. Partial means you may get some of the matching money based on how many years you have been there. For example, some companies will give you access to 20% in the first year, 40% in the second, 60% in the third and so on. Know the facts and as always, TAKE CONTROL!