What Happens to Unvested 401k When You Leave Your Job
Leaving before you're fully vested? Here's exactly what you'll lose - and what you can do about it.
Key Takeaways
- 1Your own contributions are always 100% yours - they're immediately vested.
- 2Employer matching contributions follow a vesting schedule - you may forfeit some.
- 3Common vesting schedules: 3-year cliff or 6-year graded.
- 4Unvested amounts are forfeited back to the employer when you leave.
- 5Some employers use unvested funds to reduce their future contribution costs.
- 6Calculate your vested amount before making any job change decisions.
Understanding 401k Vesting
**Vesting** means you've earned the right to keep employer contributions. **Your contributions:** Always 100% vested immediately. Money you put in is always yours. **Employer contributions:** Often follow a vesting schedule. You earn ownership over time.
- Your deferrals: Always 100% vested
- Employer match: Follows vesting schedule
- Employer profit sharing: May have different schedule
- Investment gains: Vest at same rate as the contributions
Common Vesting Schedules
There are two main types of vesting schedules:
- **3-year cliff:** 0% for 3 years, 100% after 3 years
- **6-year graded:** 20% per year starting year 2
- **SAFE harbor match:** Must be immediate or 2-year cliff max
| Type | How It Works | Timeline |
|---|---|---|
| Cliff Vesting | 0% until cliff date, then 100% | Usually 3 years |
| Graded Vesting | Increases gradually each year | Usually 2-6 years |
| Immediate | 100% from day one | No waiting |
What Happens to Forfeited Amounts
When you leave before being fully vested, unvested employer contributions are forfeited. This money typically:
- Returns to the plan's forfeiture account
- Used to reduce employer's future contributions
- May pay plan administrative expenses
- Never goes to other employees' accounts directly
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How to Calculate Your Vested Amount
Check your 401k statement or ask HR for: 1. Your total balance 2. Your contributions (always 100% vested) 3. Employer contributions and vesting percentage
| Source | Amount | Vested % | Yours to Keep |
|---|---|---|---|
| Your contributions | $30,000 | 100% | $30,000 |
| Employer match | $15,000 | 60% | $9,000 |
| **Total** | $45,000 | **$39,000** |
Should You Stay for Vesting?
Consider these factors when deciding whether to wait for vesting:
- **Calculate the dollar amount:** Is $5k worth staying 6 months?
- **New job offer value:** Higher salary may outweigh unvested amount
- **Time to full vesting:** Months vs. years matters
- **Unhappy at work:** Mental health has value too
- **Cliff approaching:** If you're close to a cliff date, waiting may make sense
Check Your Vesting BEFORE Giving Notice
If you're close to a vesting cliff (e.g., 2 years and 10 months into a 3-year cliff), waiting a few weeks could be worth thousands. Check your exact vesting date before making any decisions.
Protect Your Vested Portion
Once you leave, you can roll your vested 401k into a Gold IRA to protect it from market volatility.
- Roll vested portion to Gold IRA tax-free
- Physical gold provides crash protection
- No more employer dependency for your retirement
- Same tax advantages as traditional IRA
- You control the investment choices
Frequently Asked Questions
1What if I'm laid off - do I still forfeit unvested amounts?
Generally yes - involuntary termination is treated the same as resignation for vesting purposes. However, some plans have special provisions for layoffs or acquisitions. Check your Summary Plan Description or ask HR.
2Do unvested amounts ever vest faster?
Some plans provide accelerated vesting upon reaching retirement age, disability, or death. Company acquisitions sometimes trigger full vesting. Check your plan documents for specific provisions.
3Can I take a loan against unvested amounts?
No. 401k loans can only be taken against your vested balance. Unvested amounts aren't truly yours yet and cannot be borrowed against.
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