You Could Put Unused Vacation Days Into Your 401(k)
Saturday, September 26, 2009, 2:25 AM | Leave Comment
Your vacation or left-over sick days can pay you dividend if your company allows it. It can be any profit-sharing plan for that matter. Let’s hope your company amends its benefit plans to allow it.
“The techniques are available for use with all qualified plans, which include 401(k), Keogh and profit-sharing plans but not IRAs or SEP-IRAs. While the rules don’t currently extend to the 403(b) plans used by non-profit organizations, Treasury is willing to consider expanding them to include such plans,” says Mark Iwry, a senior Treasury official.
The rules apply when you cash-out unused vacation, sick leave, or personal days that occur either annually or when an employee leaves a job. If an employer pays for such leave either in whole or in part, you could contribute the entire payment to the company’s plan – unless you have already maxed out the annual contribution limit. This year the limit for most workers is $16,500, or $22,000 for those over 50.
In a Nutshell
Companies can opt to pay workers for unused leave only if they bank the money in a 401(k) or other qualified plan – in effect requiring employees to save or else forgo the money. A firm may also let employees decide whether to save or spend.
If your employer does not currently pay you for unused leave, it may want to reconsider its policies. The transfers compensate you and encourage savings but do not increase base pay. So talk to your employer to add this benefit to its plan.
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