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February 15, 2009


Your Guide

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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
0% or more
20% or more
40% or more
60% or more
80% or more
100% or more

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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Definition The annual Addition limit is the maximum amount that may be added to a defined contribution plan on behalf of a participant for any

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