Here's What Happens When You Leave Your Job Before Vesting in Your 401(k)

If you're self-employed and have to figure out retirement savings on your own, you can open an IRA and build your nest egg there. But the downside of saving in an IRA is that you need to fund that account yourself. You won't be eligible for an employer match, since you don't have an employer.

On the other hand, if you work for a company that sponsors a 401(k) plan, you may be entitled to matching dollars that help you grow more retirement wealth. An estimated 98% of companies that offer a 401(k) plan offer matching contributions to some degree, according to a survey by the Plan Sponsor Council of America. And those matches can take on different forms.

In some cases, your employer might match a percentage of your salary up to a certain point. So you might, for example, get a 3% match if you put in 3% of your salary. Other employers might offer a dollar-for-dollar match up to a certain limit, so if you put $3,000 of your earnings into a 401(k), your employer will give you another $3,000, regardless of what percentage of your salary that sum amounts to.

But if your employer has a vesting schedule, you'll want to be aware of it. And if you leave your job before fully vesting in your 401(k), you may have to forgo some or all of the matching dollars your employer gave you.

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How vesting works

There are different types of vesting schedules your 401(k) might be subject to. The type of schedule your employer uses will determine how much money you get to walk away with if you leave your job before vesting in full.

Some companies do a graduated vesting schedule where you get a percentage of the total match you're entitled to every year. So if your employer has a three-year vesting schedule, you might get 33% of your match your first year, another 33% the next year, and so forth. In this situation, if you were to leave after two years, you'd generally be entitled to 66% of your match.

Other companies employ an all-or-nothing vesting schedule where if you leave before the end of your vesting period, you get $0. So in the case of a three-year vesting schedule like that, leaving after two years would mean giving up your employer match in full.

Your contributions are yours to keep no matter what

Leaving a job before vesting in your 401(k), or vesting in full, could cause you to lose out on employer matching dollars. But rest assured that any funds you contribute to your 401(k) out of your own earnings are yours to keep in full, regardless of when you leave your job.

So if you put $3,000 into your 401(k) and your employer offers a $3,000 match, you may not get that match in full depending on when you decide to move on. But the $3,000 you put in is yours no matter what, the same way you'd be entitled to keep a $3,000 deposit you decide to make to a regular savings account.