Save time with our cheat sheets, fact sheets, checklists & books!

February 15, 2009

Vesting

Print

Definition

The process by which participants gain ownership (or nonforfeitable rights) in employer contributions made to employer sponsored plans. Certain contributions are always immediately 100% vested. These include salary deferral contributions and all contributions to SEP and SIMPLE IRAs.

Referring Cite

IRC § 411(a)(2), IRC §416(b)(1)

Additional Helpful Information

A vesting schedule makes sense only if the plan covers non-owner employees. For plans that cover only the business owners (owner-only plans), for instance the SBO-401(k) plan, contributions are usually 100% vested.

For contributions that are not immediately 100% vested, the plan should be designed to include a vesting schedule which must be within the limits established under the Code.

For example, the following vesting schedule must be used for defined contribution plans

Years of Vesting Service
Cliff vesting
Graded
Vesting
1
0%
0% or more
2
0%
20% or more
3
100%
40% or more
4
100%
60% or more
5
100%
80% or more
6
100%
100% or more
More

Keep Learning

Saver’s Credit

Definition Also known as the Saver’s Tax Credit: Nonrefundable tax credit available to eligible individuals who make contributions to their retirement account. The saver’s credit

Catch-up Contribution

Definition An additional contribution that can be made to a retirement plan by a participant who is at least age-50 by the end of the

Salary Deferral Contribution

Definition A contribution made pursuant to a participant’s election to have a portion of his/her salary/wages  contributed to his/ her employer sponsored plan  rather than

Be among the first to know when

IRA Rules
Change