March 5, 2014

When investing in your company retirement plan (401(k) for example), you need to understand the vesting period. What is this?

5 thoughts on “March 5, 2014”

  1. Garrett Haag says:

    Vesting is when an employer incresses their contributions that they put in to your retirement plan, the longer you work there, they may start out only matching. You have more say in the money that was given to you by your employer the longer you work there. With a graded vesting schedule, you vest in your employer’s contributions on certain anniversaries of your employment. If your employer uses a graded vesting schedule it may be similar but cant be less due to the Pension Protection Act of 2006.
    After one year of service: 0% vested
    After two years of service: 20% vested
    After three years of service: 40% vested
    After four years of service: 60% vested
    After five years of service: 80% vested
    After six or more years of service: 100% vested
    So after working there 6 years you have full control over your own 401K, this is to promote loyalty to a job and get you stay and a place longer than just a year when you find something else that may be a little better.

  2. Garrett Haag says:

    There is also cliff vesting that gives you full control over your money all at once when you hit a curtain milestone of working some place, there is also Imediate vesting that gives you compleat control over your money as soon as you start working, this is important to know because if you want to leave your work a year or so after starting you need to know if you are going to keep the money in your retirement account.

  3. Chris says:

    The vesting period is how long you have to be employed with your company before you can take their matched contributions with you if you leave. Normally this period is 5 years. Some companies will allow a certain % of that money to go up to the 5 commitment. It is important to get with your HR dept. to understand your company’s policies. “YOU” must educate yourself. “You” are the answer.

  4. Mike Finley says:

    You gentlemen covered this issue quite well and I have little to add. Keep in mind, the vesting period deals with the matching money from your employer, NOT the money you place in the account. Immediately upon getting hired, identify the vesting period at your work with your retirement plan, get started, and stay with it over time. Financial freedom will follow!

  5. Greg says:

    The vesting period is the amount of time you need to work at the company before the portion they are matching in your retirement is fully yours.

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