401(k) Vesting Schedules Explained, Cliff vs Graded
Employer contributions to a 401(k) can come with a waiting period called vesting, and leaving before you are vested can forfeit part of that money. Your own salary deferrals are never at risk. The IRS example schedules below, as shown on its vesting page (last reviewed April 8, 2026), reach 100% after 3 years (cliff) or 6 years (graded).
1. What vesting means
The IRS defines vesting simply: it means ownership. Each year, an employee vests in, or owns, a certain percentage of the account. Once you are 100% vested in your balance, you own all of it, and the IRS says the employer cannot forfeit, or take it back, for any reason.
Amounts that are not vested may be forfeited when you are paid your account balance, for example when you leave the employer, or when you do not work more than 500 hours in a year for five years.
2. Your own money is always yours
The IRS is clear: an employee's own contributions to the plan, such as elective deferrals taken from salary, are always 100% vested.
Vesting schedules apply to employer contributions, such as matching or profit-sharing contributions.
3. Different plans, different rules
According to the IRS:
- SEP and SIMPLE IRA plans (and other IRA-based plans) require all contributions to be 100% vested immediately.
- Qualified defined contribution plans, such as 401(k) and profit-sharing plans, can use different vesting schedules set by the plan document, ranging from immediate vesting to schedules that take years.
The IRS also notes that many plans provide 100% vesting for all employees immediately when they begin participating. So check your own plan before assuming you face a waiting period at all.
4. Cliff vs graded vesting
The IRS shows two common shapes of schedule:
| Years of service | Cliff vesting | Graded vesting |
|---|---|---|
| 1 | 0% | 0% |
| 2 | 0% | 20% |
| 3 | 100% | 40% |
| 4 | 100% | 60% |
| 5 | 100% | 80% |
| 6 | 100% | 100% |
Cliff vesting gives you nothing until a set point, then everything at once; in the IRS table, that is 100% after 3 years of service. Graded vesting adds a percentage each year; in the IRS table, it starts at 20% after 2 years and reaches 100% after 6.
4.1. What counts as a year of service
A year of service is defined by the plan. The IRS says it is generally 1,000 hours worked over 12 months, but employers can choose different methods of counting service. The IRS example: a worker who started in June 2007, quit in August 2011, and worked at least 1,000 hours in each calendar year from 2007 through 2011 had 5 years of vesting service, and under a 6-year graded schedule was 80% vested.
Notice what that example shows: partial years at the start and end can still count as full years of service if the hours threshold is met in each counting period.
5. What leaving early costs, in dollars
Assume, for illustration, an employer match of $2,400 a year, and ignore investment gains to keep the math clear.
| You leave after | Employer money contributed | Vested under cliff (3-year) | Vested under graded (6-year) |
|---|---|---|---|
| 2 years | $4,800 | $0 | $960 |
| 3 years | $7,200 | $7,200 | $2,880 |
| 4 years | $9,600 | $9,600 | $5,760 |
| 5 years | $12,000 | $12,000 | $9,600 |
Under the graded schedule, leaving after 4 years means walking away from $3,840 of employer contributions. Under the cliff schedule, leaving just before your third year of service means losing the whole $4,800 accumulated so far, while staying a little longer would make all of it yours.
6. When you become fully vested regardless
The IRS says all employees must be 100% vested by normal retirement age under the plan, and when the plan is terminated. Those protections apply no matter where you are on the schedule.
7. Where forfeited money goes
Forfeited, unvested amounts do not go back to you. The IRS explains that your plan will describe how forfeitures are used: either to increase benefits or to fund future benefits for other plan participants.
8. How to check your own vesting
The IRS points to three places:
- Your Summary Plan Description, which states the vesting schedule and how service is counted.
- Your annual benefits statement, for your current account details.
- Your employer or human resources department, for anything unclear.
Before you resign, look up your vested percentage and your service date. If a cliff or the next graded step is only weeks away, the timing of your last day can be worth thousands of dollars.
9. Key takeaways
- Vesting means ownership; once 100% vested, employer contributions cannot be taken back.
- Your own salary deferrals are always 100% vested; vesting schedules apply to employer contributions.
- SEP and SIMPLE IRA contributions are always fully vested, while 401(k) plans can use cliff or graded schedules.
- In the IRS examples, cliff vesting reaches 100% after 3 years, and graded vesting reaches 100% after 6 years in 20% steps.
- With a $2,400 annual match, leaving after 4 years under the graded schedule forfeits $3,840.