What is vested balance?

A vested balance refers to the portion of employer-sponsored retirement plan assets that an employee has an unconditional right to receive. This means the employee owns these funds, even if they leave the company before retirement.

• What Determines Vesting? Vesting schedules are determined by the employer and outlined in the plan documents. Common vesting schedules include:

  • Immediate vesting: The employee is 100% vested immediately.
  • Graded vesting: Vesting gradually increases over time, often based on years of service.
  • Cliff vesting: The employee is 0% vested until they meet a certain number of years of service, at which point they become 100% vested.

• Employee Contributions: Money you contribute yourself to a retirement plan (such as a 401(k) or other defined contribution plan) is always 100% yours and is always fully vested. These are called "Employee Contributions".

• Employer Matching Contributions: Employer contributions or matching funds (e.g., the employer matches a percentage of your contributions) are subject to the employer's vesting schedule.

• Leaving a Company: When you leave a job, your vested balance determines how much of the employer's contributions you can take with you. Any unvested portion is forfeited and remains with the plan.

• Importance: Understanding your <a href="https://www.wikiwhat.page/kavramlar/Vesting%20Schedule" >Vesting Schedule</a> is crucial for retirement planning. It impacts the total amount of retirement savings you'll have available when you retire.