What is vesting?

Vesting is what percentage of a retirement account certain parties own. As an employee, you own a certain ratio of your account. In other words, you “vest” your account. It is common for certain companies to use vesting as an incentive to retain employees. For example, if an account were to be “vested after 5 years”, that means as long as you remain at your current company for five years or more you will receive 100% of your promised benefits. This often applies to matching contributions alone, because, as an employee, you are always 100% vested in your own salary 401(k) contributions.