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Happy Tuesday readers, hope everyone had a nice long weekend. Coming at you on Tuesday this week due to the holiday.

On today’s newsletter:

• Patagonia Vests?

• Can Memojis be trusted?

• Learn how an Employer Retirement Account vesting period works.

Let’s get to it!

A little while ago, I came across a tweet from a “finance guru” Twitter account. Here it is:

Oof. Did this dude’s job just fleece (Patagonia pun!) him out of his 401k? What’s going on here? Is this legal? Did he not wear a vest long enough?

Vesting Schedules - Explained

If you haven’t caught on already, there’s no Patagonia being worn here or any type of vest for that matter.

We’re talking about periods of time that pass where company contributions to your 401k or 403b are yours to keep, 100%. Many companies offer a benefit of matching your retirement account contributions up to a certain %. However, the money your employer matches is generally not yours to keep right away. (Unless your employer does not do vesting periods.)

Employers will usually enroll all employees at a predetermined rate to contribute to their retirement accounts, meaning all employees get an employer match without doing anything. Great! But what if you’re like the Dividend Kid above and quit your job without knowing any of this?

Simple. Read the benefits package your employer offers you. It’ll say it right in there. BONUS TIP: If you are job hunting - use the benefits and retirement account matching to determine your total compensation. Many employers differ wildly here and it’s best to be aware if you would leave something on the table.

Let’s look at a sample vesting schedule.

• After 1 Year - 20% - If I had $100 I only can keep $20..

• After 2 Years - 40% - If I had $200 I only keep $80..

• After 3 Years - 60% - And so on..

• After 4 Years - 80%

• After 5 Years - 100%

Each year you work for this sample job, you’ll be able to keep 20% more that your employer contributed. You are always 100% vested with contributions that you make on your behalf. Source - the IRS, right here.

Why does your employer do this? Well, they want to incentivize you to stay working there. Recruiting and training new employees is expensive. This is how they combat that.

Types of Vesting

You thought that was it? Ha, nope! The sample vesting periods above represent Graded Vesting - vesting at a common rate over time. Another type is Cliff Vesting (very common in start-up land with Restricted Stock Units) where in employee is 0% vested until a specific length of service is completed. You could be 0% vested and then on year 5, boom, 100% vested. The IRS link I referenced above shares some more nuances with regard to small business and self-employment, if you are interested in reading further.

Often, employers may have complicated schedules, different requirements, and achievements that need to be made to advance to the next vesting level. It can get confusing, so if your employer is a funky one, reach out to the benefits people. They live for this ish.

Got what vesting schedules are all about? Good. Let’s check back in with the Dividend Kid to see what he thinks about them.

It seems the Dividend Kid may hate free money. And only has the capacity to understand dividends. And they may not hold a good-benefit W-2 job for the foreseeable future.

Even financial “gurus” on Twitter may not know what they're talking about. (duh!) Would you take advice from a Memoji profile picture? I’ll leave that to you.

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Stay Frosty My Friends,

Andrew

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