What does it mean when the money in your 401(k) is vested?

When the money in your 401(k) is vested, it means that you have earned the right to keep the employer contributions to your retirement account, even if you decide to leave your job. This typically occurs after you have worked for the employer for a certain period, known as the vesting period. Once you are vested, all the funds, including both your personal contributions and those made by your employer, belong to you and can be rolled over to another retirement account or withdrawn upon reaching retirement age or meeting other conditions.

Your own contributions are always fully vested, but employer contributions may be subject to a vesting schedule, which might require you to work for a defined number of years before fully owning those funds. Understanding vesting is crucial, as it impacts how much money you can take with you if you transition to a new job. This concept encourages employee retention, as employees are motivated to stay until they are fully vested and can benefit from the full amount of employer contributions.