Assets & Investments

Vesting schedule

Also known asEquity vestingStock vesting

Definition

A vesting schedule is the timetable that determines when an employee gains full ownership of equity, retirement contributions, or other deferred compensation. The most common patterns are cliff vesting (full vesting at a single date) and graded vesting (incremental vesting over multiple periods, often 3–4 years with a 1-year cliff).

By Olomon EditorialLast updated
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Key takeaways

  • Vesting controls when granted equity or contributions actually become yours.
  • A typical RSU or option grant uses 4-year vesting with a 1-year cliff — 0% before year 1, then monthly or quarterly increments.
  • Unvested equity is generally forfeited if employment ends.
  • Vesting schedules drive critical tax and planning events: 83(b) elections, RSU income recognition, and option exercise timing.

How Olomon thinks about this

Equity grants are one of the largest — and most poorly tracked — components of household wealth for employees of growth companies. Olomon stores grant agreements, vesting schedules, and exercise/sale events alongside the rest of your balance sheet, so projected vested value, future tax exposure, and concentration risk are visible to you and any CPA or planner you collaborate with.

In-depth definition

Vesting is the mechanism employers use to align long-term retention with deferred compensation. A grant of restricted stock units (RSUs), stock options, or 401(k) employer contributions becomes yours over time according to a defined schedule — not on the day it is granted.

Common vesting patterns

  • Cliff vesting: 0% vested until a single date (e.g. 25% at year 1), then a chunk all at once.
  • Graded vesting: vests in equal portions over multiple periods.
  • Standard startup pattern: 4-year graded with a 1-year cliff — 25% at year 1, then monthly thereafter.
  • Performance vesting: tied to revenue, valuation, or milestone achievement.

Frequently asked questions

  • In most plans, unvested equity is forfeited on termination. Vested options typically have a post-termination exercise window (often 90 days), which means a job change can trigger major financial decisions and tax consequences.

  • An 83(b) election lets a recipient of restricted stock pay tax on the value at grant rather than at vesting. It can be powerful for early-stage equity but must be filed with the IRS within 30 days of the grant. Discuss with a CPA before filing.

Sources

Primary, authoritative references.

  1. 1

    Internal Revenue Service (IRS)

    Equity (Stock-Based Compensation) Audit Technique Guide

    Cited for: IRS treatment of equity comp and vesting

  2. 2

    Investor.gov (SEC Office of Investor Education and Advocacy)

    Vesting — Investor.gov

    Cited for: Definition and basic mechanics

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Cite this page

APA
Olomon Editorial Team. (2026). Vesting schedule. Olomon Financial Glossary. https://olomon.com/financial-glossary/vesting-schedule

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