Vesting: How Your 401k Vested Balance Works

Your vested balance is the amount of your retirement account that you actually own. But can you take that money out right now and spend it? It depends.

Vesting is a strategy that encourages employees to stay with their jobs, and it can also be a cost-saving measure for employers that offer retirement plans.

Your vested account balance is the amount you can take with you when you leave your job. The funds might also be available for 401(k) loans or hardship withdrawals. Once you’re vested, the employer generally can’t take that money back.


Any money you contribute from your pay (or any rollovers into your retirement plan) are typically 100% vested immediately. But employer contributions, like 401(k) matching dollars, might have a vesting schedule. An exception would be certain safe harbor 401k contributions that vest immediately.


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There are several different vesting schedules, including a 6-year graded schedule, cliff vesting, and other approaches. It’s important to know what vested means with your particular plan so you can decide what to do about your job. If you’re only 40% vested, does it make sense to stay longer and boost your vested account balance?

Unlike 401k vesting, IRA-based plans don’t use vesting schedules. If you have a SEP or a SIMPLE plan, you generally have access to take that money out whenever you want. However, doing so reduces your retirement savings, and there may be tax consequences.

Find out exactly how your 401k vested balance works before making any decisions. This is a general overview, but every plan is different. Plus, this information may contain errors and omissions, so it’s critical that you double-check everything. Check with a CPA to learn about the tax impact of taking money from a retirement account—you don’t want any unpleasant surprises.

Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.

IMPORTANT:
It's impossible to cover every detail and topic in a video like this. The only thing that's certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration.