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Why is vesting important?

Vesting ensures employees understand which retirement contributions belong to them. In IRA-based plans, such as SIMPLE and SEP IRAs, all contributions are immediately owned by the employee. This makes retirement planning straightforward and predictable.

Vesting is important because it helps employees and employers understand:

• Ownership of contributions: Employees always fully own their contributions, including employer contributions in SIMPLE and SEP IRAs.

• Account balance clarity: Knowing that all contributions are fully vested allows employees to accurately track their retirement savings.

• Benefit accumulation: Employees can see exactly how their retirement benefits grow over time.

• Transparency and financial planning: Clear rules about contributions improve employee understanding of their retirement benefits and support long-term financial planning.

With IRA-based plans, vesting is simple. Employees never risk losing contributions due to employment changes, which reduces administrative complexity for employers and gives employees confidence in their retirement savings.