Money guide · Retirement accounts and planning
401(k) match and vesting: how employer contributions work
Read employer match formulas and vesting schedules, and calculate contributions without assuming every match is immediately owned.
How it works
Plans can use different formulas, eligibility periods, contribution timing, and vesting rules. A percentage in a benefits summary can mean a percentage of your contribution or a percentage of pay. Read the actual plan documentation. A match may be calculated by payroll period, with or without a later adjustment called a true-up.
A worked example
A hypothetical employer matches 50% of employee contributions on the first 6% of $60,000 annual pay. An employee contributes $3,600, and the match is $1,800. If the applicable employer amount is only 50% vested at departure, the illustrative vested match would be $900. Actual eligibility and vesting terms can differ from this scenario.
What to compare
Check what pay counts, the contribution required to receive the full match, the timing, and any true-up provisions. Review what happens if you leave or contribute unevenly during the year. Include match ownership in a job-change comparison rather than treating every displayed dollar as already transferable. Ask the administrator for unresolved details.
A common mistake to avoid
Do not confuse an employer match with an investment return. Market performance affects the account after contributions are invested. Nor should you assume a displayed employer balance is fully vested. Front-loading contributions may affect matches in some plans if each pay period is evaluated separately.
Are my own contributions subject to vesting?
Employee contributions are generally fully vested. Employer contributions can have different vesting terms, which are described in the plan.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or adjust a retirement goal for inflation using your own assumptions.