A 401(k) match often feels like free money. You save money in your retirement account, and your employer adds its own funds to the account too, potentially doubling the total 401(k) contributions for the year.
But what some people don't realize is that the 401(k) match might not actually be yours yet, even if it's showing up in your account.
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There's a hidden string attached to your 401(k) match
In addition to putting your own money into your 401(k), most employers require you to remain with the company for a certain amount of time before you can legally walk away with your employer-matched funds. This is known as the vesting schedule.
There are two main types of vesting schedules: cliff and graded. Cliff vesting schedules can be as long as three years, and they're an all-or-nothing sort of deal. If you quit before working for the company long enough, you lose all of your 401(k) match.
Graded vesting schedules gradually release ownership of your employer-matched funds to you. For example, after one year, you might own 20% of your employer-matched funds, 40% after two years, and so on. Graded vesting schedules can last up to six years.
Leaving before you're fully vested can cost you quite a bit, so it's important to be careful. Ask your employer if you're not sure how the company's vesting schedule works. If you're almost fully vested, you might want to stick with your job a little bit longer so you don't lose any of this money.
If you decide to quit before you're fully vested, bear in mind that you may need to save more aggressively going forward to make up for what you lost.
