Vesting is a term that describes your right to receive your account balance upon distribution from the plan. For example, you are 80% vested in an account that is worth $20,000. Upon distribution, you will receive $16,000. The other $4,000 is “forfeited”.
- You are always 100% vested in your 401(k) deferrals.
- You are always 100% vested in non-discretionary, employer Safe Harbor contributions
- Terms of your company’s plan dictate if other “sources” of contributions, e.g., regular matches, profit sharing, etc., are subject to a vesting schedule.
- The plan defines a Year of Service, typically a calendar year in which you work 1,000 hours.
- For each Year of Service, you become more vested. Typical vesting schedules give no vesting until you have 2 Years of Service—at which point you are 20% vested. With each passing year, you earn an addition 20% vesting such that you are fully vested after 6 Years of Service.
You might possibly earn a Year of Service for the last calendar year of your employment, but beyond that, nothing increases your percentage of vesting (unless the company terminates the plan).
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