Accounts · Investing Glossary
What Is Vesting?
The schedule by which you gain full ownership of employer-contributed retirement funds or stock.
The Full Definition
Vesting is the timeline over which you earn full ownership of money or stock your employer contributes on your behalf — commonly employer 401(k) matches or stock-based compensation. Until fully vested, leaving the company can mean forfeiting some or all of the unvested portion. Vesting schedules are typically either "cliff" (you get nothing until a specific date, then 100% at once) or "graded" (ownership phases in gradually, e.g., 20% per year over five years).
Real-World Example
An employee with a 4-year graded vesting schedule on their 401(k) match who leaves after 2 years might keep only 50% of the employer contributions made so far — the unvested half reverts to the employer.
Related Terms
- Employer MatchMoney an employer contributes to your retirement account based on your own contributions.
- 401(k)An employer-sponsored retirement savings plan with pre-tax contributions and potential employer match.
- Tax-DeferredInvestment growth that isn't taxed until money is withdrawn, typically in retirement.
- Contribution LimitThe maximum amount the IRS allows an individual to deposit into a retirement account each year.