How does 401K match vesting work?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
rihorubofa
Posts: 16
Joined: Sun Jan 29, 2017 5:25 pm

How does 401K match vesting work?

Post by rihorubofa » Sat Feb 11, 2017 3:35 pm

New employer has a 100% match and vesting schedule of 0% before year 3 and then 100% after that. How does this work in practice? I.e, would they match 100% year1 but claw it back if I leave before reaching 3 years? Or do they not match anything until year 3's contributions?

User avatar
dm200
Posts: 18767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: How does 401K match vesting work?

Post by dm200 » Sat Feb 11, 2017 3:38 pm

rihorubofa wrote:New employer has a 100% match and vesting schedule of 0% before year 3 and then 100% after that. How does this work in practice? I.e, would they match 100% year1 but claw it back if I leave before reaching 3 years? Or do they not match anything until year 3's contributions?
It may depend on the exact details of the plan. A 100% match is quite generous - as is full vesting in year 3. Probably, they match before year 3 (check details), but would take it back if you left before full vesting.

rihorubofa
Posts: 16
Joined: Sun Jan 29, 2017 5:25 pm

Re: How does 401K match vesting work?

Post by rihorubofa » Sat Feb 11, 2017 4:08 pm

dm200 wrote: It may depend on the exact details of the plan. A 100% match is quite generous - as is full vesting in year 3. Probably, they match before year 3 (check details), but would take it back if you left before full vesting.
Thanks, I'll ask them about the vesting specifics but if they do take it back then it would seem that I would only be contributing half of the maximum which isn't very good!

User avatar
dm200
Posts: 18767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: How does 401K match vesting work?

Post by dm200 » Sat Feb 11, 2017 4:17 pm

rihorubofa wrote:
dm200 wrote: It may depend on the exact details of the plan. A 100% match is quite generous - as is full vesting in year 3. Probably, they match before year 3 (check details), but would take it back if you left before full vesting.
Thanks, I'll ask them about the vesting specifics but if they do take it back then it would seem that I would only be contributing half of the maximum which isn't very good!
Do you think there is a high probability that you will leave before full vesting?

I don't understand the statement about only contributing half the maximum? Maximum relates to your contributions - not the total with the match (unless I am missing something).

rihorubofa
Posts: 16
Joined: Sun Jan 29, 2017 5:25 pm

Re: How does 401K match vesting work?

Post by rihorubofa » Sat Feb 11, 2017 4:24 pm

I wouldn't say there is a high probability, but the probability is at least non-zero! Regarding the contributions, if I want to contribute the maximum per year, I would effectively be paying 9K pre-tax each year and the company would match that by depositing 9K into my 401K. Now let's say I leave after year 1. Would the company withdraw 9K from my 401K? That's what I meant by being left with an effective 50% contribution which would be quite detrimental for my retirement planning!

User avatar
jhfenton
Posts: 3347
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: How does 401K match vesting work?

Post by jhfenton » Sat Feb 11, 2017 4:30 pm

rihorubofa wrote:I wouldn't say there is a high probability, but the probability is at least non-zero! Regarding the contributions, if I want to contribute the maximum per year, I would effectively be paying 9K pre-tax each year and the company would match that by depositing 9K into my 401K. Now let's say I leave after year 1. Would the company withdraw 9K from my 401K? That's what I meant by being left with an effective 50% contribution which would be quite detrimental for my retirement planning!
If you contribute $9,000, you're only contributing half of the maximum $18,000. Employer contributions don't count toward the $18,000 limit.

Having an unvested match in no way limits your contributions.

MPAndy222
Posts: 42
Joined: Thu Mar 31, 2016 6:26 pm

Re: How does 401K match vesting work?

Post by MPAndy222 » Sat Feb 11, 2017 4:33 pm

rihorubofa wrote:I wouldn't say there is a high probability, but the probability is at least non-zero! Regarding the contributions, if I want to contribute the maximum per year, I would effectively be paying 9K pre-tax each year and the company would match that by depositing 9K into my 401K. Now let's say I leave after year 1. Would the company withdraw 9K from my 401K? That's what I meant by being left with an effective 50% contribution which would be quite detrimental for my retirement planning!
The maximum pretax contribution is 18k unless you are in the 'catch-up' phase (the company match is not included in the maximum). If the company matches 1:1 or 100% then you will have 36k in your account after making the maximum contribution. That is a good incentive to stay for 3 years. The longest a company can not offer a nested vesting option is 3 years hence you will get all of the company match after being there for 3 years (most companies offer nested vesting options to extend the vest to 5 years ie 20% vest per year to a max of 5 years)

rihorubofa
Posts: 16
Joined: Sun Jan 29, 2017 5:25 pm

Re: How does 401K match vesting work?

Post by rihorubofa » Sat Feb 11, 2017 5:29 pm

Now it makes sense. I thought the 18K max took into account the company match which is what was causing my confusion surrounding how it would claw back. I'll make sure to go over the details when I join but I just wanted to ask here so I'm better prepared. Thanks!

User avatar
dm200
Posts: 18767
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: How does 401K match vesting work?

Post by dm200 » Sat Feb 11, 2017 6:22 pm

I wouldn't say there is a high probability, but the probability is at least non-zero!
Read and fully understand exactly the vesting dates that apply to you. Then, I would add one month - just to be sure. It would be a shame if you miscalculated and left a few days before being fully vested.

sport
Posts: 7415
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: How does 401K match vesting work?

Post by sport » Sat Feb 11, 2017 6:50 pm

I worked for a company that had a 20% per year vesting percentage. The facility closed shortly before my second anniversary date, and my job ended. They were going to give me only 20% of all matching money previously paid. I pointed out that my unused vacation time carried me past the anniversary date. That got me 40% of the matching money.

Post Reply