Simple Does It: Vested Balance

Simple Does It: Vested Balance

First off, let me tell you what a vested balance is not. It isn't coordinating an outfit so that a vest and shoulder pads are balanced and symmetrical. It also isn't a phase of my life during middle school in which vests made up a large balance of my wardrobe (come on, it was the late '80s!). In fact, as disappointing as it might sound, a vested balance really has nothing to do at all with any kind of a vest that you wear (insert disappointed sigh here).

Simply Put: Vesting Defined

Keeping our focus on the simplistic side, a vested balance (and its counterpart, the nonvested balance) has to do with a retirement account – something way better for you than the even coolest of knit vests. Simply stated, the vested balance of a retirement account is the portion that belongs to the worker, period, end of sentence. It doesn't matter if you throw up your hands and stomp out of the office today, retire or are fired; whatever money is in the vested portion of your retirement account is still yours.

So what money makes up this vested part? Often, a retirement account is comprised of money you put into it and sometimes an employer's contributions. The money that you contribute to your plan directly typically is immediately vested and thus makes up the vested portion of such an account.

The Nonvested Portion

But, for every vested part, there is also the nonvested portion to consider as well. There usually is an amount of your account that is considered nonvested – meaning that its hands-off to you for a certain period of time. Often, the employer-contributed funds comprise this nonvested portion of a retirement account. It's good to note that if you do go ahead and engage in a show-stopping "I quit!" that you will lose any amount of your account that is nonvested (the same goes for leaving a job due to retirement or being fired).

The Vesting Period

Which brings us to a vesting period. Eventually, the portion in excess of your vested contributions will make the jump from nonvested to join the rest of the vested amount. The IRS has its hands in this time before the nonvested joins the vested - the vesting period - and has declared that employers cannot make this time too terrible long and must provide you, the employee, detailed info on it. It makes sense that this vesting period can vary from job to job, so checking with your employer can give you a handle on just how long you have to vest – er, wait.

So there you have it: vested balance, nonvested balance and the vesting period covered in a simple, straightforward manner with nary a vest garment in sight. We're pleased to have our "Simple Does It" series on financial and investing terms back; keep watching for similar posts in the future.

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Financial Definitions - Glossary for Understanding Finances wrote:

Thu, 01/19/2012 - 21:47 Comment #: 1

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