What is what does it mean when your 401k is vested?

When your 401(k) is vested, it means you have full ownership of the money in your account. You are entitled to keep both the money you contributed from your paycheck and any contributions made by your employer.

Here's a breakdown:

• Your Contributions: Money you directly contribute from your paycheck is always immediately and fully vested. This means you own it from day one.

• <a href="https://www.wikiwhat.page/kavramlar/Employer%20Matching%20Contributions">Employer Matching Contributions</a> and <a href="https://www.wikiwhat.page/kavramlar/Profit%20Sharing">Profit Sharing</a>: These are contributions your employer makes to your 401(k) on your behalf. They typically come with a vesting schedule.

• <a href="https://www.wikiwhat.page/kavramlar/Vesting%20Schedule">Vesting Schedule</a>: This is the timeline set by your employer that determines when you gain full ownership of their contributions. Common vesting schedules include:

  • Cliff Vesting: You become 100% vested after a specific period of service (e.g., 3 years). If you leave before this date, you forfeit all employer contributions.
  • Graded Vesting: You gradually gain ownership over time (e.g., 20% vested after 2 years of service, increasing to 100% after 6 years).

• Why Vesting Matters: If you leave your job before becoming fully vested, you may lose some or all of the employer contributions. Understanding your company's <a href="https://www.wikiwhat.page/kavramlar/401(k)%20plan">401(k) plan</a> and vesting schedule is crucial for your financial planning.