What Does It Mean to Be 100% Vested in My 401K?
The 401k is an employer-sponsored retirement account. It encourages you to save for retirement by allowing pre-tax contributions to your account through payroll deduction. This allows you to save for retirement automatically and reduce your current taxable income at the same time.
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Vesting
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If you begin contributing to your 401k as soon as you begin working for a new company, then your contributions, and any earnings from those contributions, belong to you if you decide to leave the company. However, company contributions do not belong to you until you have worked for the company long enough to be vested. Once you are fully vested, then you have access to both your own contributions and the company's contributions if you should leave.
Graded Vesting Plan
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There are two different types of vesting plans, cliff and graded. You will need to contact your 401k provider or refer to your company's intranet to determine which one your employer uses. The graded vesting plan allows you to be partially vested each year, until you become fully vested. For example, a company might have a five-year graded vesting plan. This means that you would be 20 percent vested after one year, 40 percent vested after two years, and so on until you are fully vested at the end of five years. In the case of your 401k this means that you would have access to 20 percent of your company's contributions after the first year, if you chose to leave. The amount available to you would increase until you reached the five year vesting requirement.
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Cliff Vesting
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Cliff vesting means that you would become fully vested after a certain amount of time, with no gradual increase in vesting over time. Using our five-year vesting example, you would not be vested at all until you reached five years of service, at which point you would be 100 percent vested.
Determining Your Vested Balance
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You can typically determine how much of your 401k is vested by referring to your statement. You will see separate notations for your total balance and your vested balance. You can also access this information through your online 401k account information or by calling your 401k representative directly.
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