A 401(k) match is one of the most appealing employee benefits a company can offer. It's free money that your employer gives you to put toward your retirement expenses so you don't have to shoulder the entire burden of saving on your own. But what many employees don't realize is that that money might not be guaranteed -- at least at first.

Your company most likely has a vesting schedule, which determines when employer-matched funds are yours to keep. It's a company's way of making sure that some unscrupulous employee doesn't work for a company for a few months, contribute just enough to take advantage of the free cash, and then quit to go work elsewhere. If a company's going to give you free money for your future, it wants to be sure you're going to stick around long enough to benefit the company as well. Hence, the vesting schedule. Here's a closer look at how these work and what you need to know if you're considering quitting your job.

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How vesting schedules work

Each company has its own system for determining when employer-matched funds are truly yours. A few companies may offer immediate vesting where all your company's contributions are yours as soon as they land in your retirement account, but this approach isn't very common. If your employer doesn't allow you to participate in the 401(k) until you've worked for the company for a certain number of months, it may offer immediate vesting once you are eligible to enroll.

Cliff vesting is another option used by some employers. This allows employees to begin contributing to the 401(k) immediately, but it withholds ownership of employer-matched funds until you've worked for the company for a certain amount of time. Federal law says this period cannot exceed three years. The downside to this approach is that if you leave the company before you've worked there long enough, all of your employer 401(k) match is forfeited. 

Graded vesting is similar to cliff vesting but it takes a more gradual approach. You must work for the company for a certain number of years before you become fully vested, but your employer-matched funds are gradually released to you over time. For example, a company with a five-year vesting period may allow you to keep 20% of your employer-matched funds if you leave the company after working there for one year, and 40% after two years, and so on until you're fully vested. Companies that go this route are limited to a maximum six-year vesting schedule according to federal law.

You can figure out what your company's 401(k) vesting period is by checking your plan summary or talking with your company's HR department. This is also a good thing to ask about when you take a new job that offers a 401(k) match, especially if you're unsure how long you'll remain with the company. It's important to note that vesting schedules only apply to the money your employer contributes to your retirement account on your behalf. Any funds you contribute from your own paycheck are always yours to keep no matter what.

What to do if you want to quit but aren't fully vested 

You might intend to remain with your current company for years to come, but an unexpected life event or job offer could derail those plans. Or you could find you don't like your new job as much as you'd expected to. This isn't an issue if your company doesn't offer an employer match, but if it does, you could run into problems with your vesting schedule.

There are a few ways you could approach this. If you're close to becoming fully vested and you have a significant amount of employer-matched funds, consider sticking it out a little longer until you're fully vested. This is especially worth it if you have a cliff vesting schedule where you'll lose all your employer matched funds if you leave.

Another option is just to leave and forgo the employer match altogether. This might be worth it if you have a small employer match or you haven't been contributing that much to your retirement account anyway. 

A third option is to skip contributing to your 401(k) and put your money in an IRA instead. This is worth considering if you don't expect to be with the company long enough to become fully vested. IRAs have lower annual contribution limits -- $6,000 compared to $19,000 for a 401(k) in 2019 ($7,000 and $25,000 for adults 50 and older, respectively) -- but they also give you greater freedom in how you invest your money and they typically have lower fees. Plus, you won't have to go through all the hassle of rolling your old 401(k) over into an IRA or your new company's 401(k) when you quit.

Vesting schedules are often overlooked when discussing 401(k)s, but they can make a significant difference in your retirement savings over the long run. If you've been with your company for six years or more, you have nothing to worry about. But if you haven't been around for that long yet or you're considering starting a new job, it pays to understand how your company's vesting schedule works and how it could affect your savings plan.