At last, you finally scored this position with a 401(k) match, and now you are ready to make money. Your HR specialist starts speaking in terms which sound strange to you – and one of those terms is vesting. It sounds like something for a horse and probably seems that this term can be easily ignored. However, you may be missing some free money without even realizing.
To begin with, let us clarify what vesting means without using any corporate language. Vesting is just a way of saying that your employer needs you to be loyal. Imagine it as a loyalty program of your favorite coffee shop, but even more so as your career depends on it. You should prove that you have the right to keep their money, even though these are already your funds.
There are two pools of money you should learn about. First of all, the money you have contributed belong to you, one hundred percent. It is your own money, and you do not lose it when you leave your employer. The second pool of money belongs to your employer and has either cliff or graded vesting schedule.
The cliff schedule is not really comfortable to work under, but at least it is easy to understand. If you work for your employer for less time than a certain period of time (three years, usually), then you do not own anything from their contribution at all. If you have been working there for three years and left the next day, you still got one hundred percent.
With graded schedule, you have a little more freedom to choose. In this case, you gradually become the owner of their contribution, for example, twenty percent per year, until you get one hundred percent. This way you are appreciated as a loyal employee, but you do not risk to lose all the benefits immediately.
Our generation tends to hop from one company to another for better salaries each two years, and this behavior is quite acceptable. However, with such approach, when your vesting schedule is four years, you keep leaving money behind. Calculate whether it is really profitable for you.
Look up the exact date of your vesting anniversary on your benefits website. Make this date special like your birthday and your tax payment deadline. Often, an additional three months with your current employer are enough to get a lot of money which is yours, and you are entitled to receive. It will be your easiest money ever, just wait for it.