Vesting

Vesting is the process of earning full legal ownership over benefits your employer contributes on your behalf, most commonly 401(k) matching contributions or stock options, rather than owning them outright from day one. Your own contributions are always fully yours, vesting only governs the employer-funded portion.

Companies use vesting schedules partly as a retention tool, since leaving before a milestone means forfeiting unvested employer contributions back to the plan. The 401(k) Calculator can help you see how much of your retirement balance would actually travel with you if you left today.

Vested Amount = Employer Contribution × Vesting Percentage (based on tenure)

An employee has $12,000 in employer 401(k) matching contributions after 3 years, under a graded schedule vesting 20% per year starting in year 1.

• Vesting percentage at 3 years: 60%
• Vested amount: $12,000 × 60% = $7,200

If this employee left today, they'd keep the $7,200 vested portion and forfeit the remaining $4,800 in unvested employer contributions.

• Your own contributions are never subject to vesting. Only what the employer adds on top, matching funds or profit-sharing, follows a vesting schedule.
• Cliff and graded schedules produce very different outcomes if you leave early. A cliff schedule means zero employer match if you leave one day before the cliff date, while graded schedules at least give you a partial amount.
• Vesting timelines are set by the plan, within legal limits. US law caps how long a company can delay vesting, but the exact schedule still varies by employer.
• Stock option vesting often includes a one-year cliff. It's common for equity grants to vest nothing in the first year, then a lump sum at the one-year mark, followed by regular increments after that.
• Check your vesting status before resigning near a milestone date. Timing a departure just after a vesting date, rather than just before, can mean a meaningfully larger payout.