Glossary · Definition
401(k) vesting
Vesting is the schedule by which employer-matched contributions become yours to keep. Two main types: cliff (100% at X years, 0% before) and graded (20% per year over 5 years). Your own contributions are always immediately 100% yours.
Definition
Vesting is the schedule by which employer-matched contributions become yours to keep. Two main types: cliff (100% at X years, 0% before) and graded (20% per year over 5 years). Your own contributions are always immediately 100% yours.
What it means
ERISA limits vesting schedules to 3-year cliff or 6-year graded for employer matching contributions. Faster vesting (immediate, 1-year cliff, 2-3 year graded) is allowed and many tech companies use it for retention. Slower vesting (5-year cliff) was permitted before 2002 but no longer. Profit-sharing / discretionary contributions can have separate vesting up to 6-year graded or 3-year cliff. Your salary-deferral contributions (the money you save from your paycheck) are always immediately 100% vested — those are your money, not the employer’s.
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Why it matters
Job changes can forfeit significant match. On a $100K salary with 4% match for 4 years (25% vested under graded schedule = $4K vested out of $16K total match), leaving costs $12K of forfeited match plus its growth. Worth timing job moves to capture vesting cliffs when possible. Don’t let vesting alone trap you in a bad job — but if you’re close to a cliff (within 6-12 months of going from 0% to 100% vested), it’s often worth waiting.
Example
5-year graded schedule, $100K salary, 4% match: year 1 = 20% vested ($800), year 2 = 40% ($1,600 cumulative), year 3 = 60% ($2,400), year 4 = 80% ($3,200), year 5 = 100% ($4,000). Leaving at year 3 keeps $2,400 of $4,000 contributed match.
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Frequently asked questions
Are tech-company ‘immediate vesting’ matches real?
Yes. Companies like Google, Meta, Microsoft offer immediate vesting on match. It’s a retention tool that’s less restrictive than cliffs but rewards retention through equity vesting (RSUs) instead.
Can my employer change vesting schedule?
Existing employees’ previously-earned vesting can’t be reduced. New employees can be put on a different schedule. Check your Summary Plan Description annually.
What about Roth 401k vesting?
Vesting applies only to employer match. Your own Roth 401k contributions are always immediately yours — same as traditional 401k contributions.