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Tax Glossary: Vested Benefits

Posted by McDonald & Osborne Posted on Oct 13 2015

Vested Benefits : Benefits in a company retirement plan that are yours to keep if you leave the job. Your own contributions, to a 401(k), say, are immediately 100% vested. But employer contributions on your behalf can be vested gradually over a period of time, as a way to encourage you to stay with the employer. If you quit a job when just 50% of your benefits are vested, for example, you would forfeit half of the amount the employer has set aside for you. Employers can choose “cliff vesting,” which gives you no rights to benefits until you have been in the plan for three years, after which you are 100% vested; or gradual vesting at a rate of 20% each year after the first year in the plan, so that you are 100% vested after six years.