Fully Vested: Definition and How Vesting Schedules Work

What “fully vested” means

Being fully vested means you have full legal ownership of a benefit granted by another party—most commonly employer-provided retirement contributions, stock options, profit sharing, or pension benefits. Once fully vested, those funds or rights belong to you even if you leave the employer.

How vesting differs from contribution ownership

Employee contributions (for example, your own 401(k) deferrals) are always yours.
Employer contributions (matching contributions, profit-sharing, or grant-based equity) may be subject to a vesting schedule and aren’t fully yours until vesting requirements are met.

Common types of vesting schedules

Graded (graduated) vesting: Ownership accrues incrementally over time (for example, 25% per year over four years).
Cliff vesting: No ownership until a set service period is completed, then 100% vests at once (for example, 100% after four years).
Immediate vesting: Contributions or awards belong to the employee as soon as they are granted.

How vesting works in practice

Employers set the vesting rules and include them in plan documents.
Typical threshold for vesting is length of service, but plans can include other conditions (e.g., performance).
If you leave before meeting the vesting requirements, unvested portions are generally forfeited.
Once all conditions are met, you are fully vested and own the entire benefit.

Where vesting is applied

401(k) plans and other defined-contribution retirement plans (employer matches).
Defined-benefit pensions (service-based accrual rules).
Stock options, restricted stock units (RSUs), and other equity awards.
Profit-sharing plans and other employer-funded benefits.

Why employers use vesting schedules

Retention tool: Vesting ties valuable compensation to continued employment, discouraging early departures.
Cost control: Ensures employer-funded benefits serve long-term or committed employees.
Potential downside: It can incentivize disengaged employees to stay only until vesting is achieved.

What employees should do

Read plan documents and the Summary Plan Description to understand specific vesting rules.
Track service dates and any performance criteria tied to vesting.
If changing jobs, check how much of your employer-funded benefits are vested and whether you can roll vested amounts into an IRA or new employer plan.
Consider independent retirement savings (IRAs) if employer terms are unattractive or you decline the plan.

Simple examples

Graded vesting example: Employer matches become 25% vested after year one, 50% after year two, 75% after year three, and 100% after year four.
Cliff vesting example: No match is vested until year four, when you become 100% vested all at once.

Key takeaways

Fully vested = full ownership of the benefit; unvested = subject to forfeiture if you leave.
Employee contributions are always yours; employer contributions often vest over time.
Vesting schedules—graded, cliff, or immediate—determine when ownership transfers.
Review plan documents, monitor your vesting status, and plan job changes around vested benefits when possible.