Converting or Cashing Out Your Vacation or Annual Leave Time
Although you may not realize it, going on vacation or cashing out your vacation time are not the only options to consider as you approach retirement.
Did you know that you also have the wonderful opportunity to continue to postpone or defer the taxes due on your vacation dollars by moving it to your 401 and/or your 457 retirement accounts?
Here is how it works. Let’s assume that you have 640 hours of vacation or annual leave on the books. Since the average work month is about 172 hours, you will have 3.72 months worth of leave. Additionally, since an employee with 25+ years of service earns 14 hours of vacation per month, or 18 hours of annual leave per month, the employee will really have 692 or 707 hours of credit to cash in. That amounts to a little over 4 months worth of pay. Based on 2005 salary info, a warden in a high cost area, with all of the other incentives will gross about $5600 per month. That will amount to about $22,530 to put into your 401 or 457.
As of 2005, the annual contribution was a maximum of $14,000. You could contribute it to either plan, or divide it up between both plans as long as you did not exceed $14,000 for the year. For the sake of our example, let’s assume that you have been making deposits at the maximum level into your 401 & 457 accounts all year, lets say $7,000 into each plan. At retirement, your contribution limits double for the year. You can fund each plan to the maximum. If you were retiring in December of 2005, you can deposit another $14,000 into your plans.
Additionally, you have the option to put your vacation dollars into your 401 and/or 457 over a two calendar year period if the funds available exceed the amount that you can contribute in a calendar year. So, in this example, you can deposit $14,000 into your account at retirement, and the remainder, $8530, will be deposited in January. (Don’t forget that you made this deposit so that you don’t over contribute in the year after retirement.)
You need to go to the DPA website and work your way to the current Savings Plus site or just click here. Click on the forms link and download the Transfer Lump Sum Separation Pay form. Just don’t wait till the last minute to implement this strategy because you will need to have both plans in place and you cannot do that in December. You really need to do it in November or sooner.
If you don’t have your accounts open yet, open them now and put a little into each throughout your career. You will find everything you need at your personnel office or at the Savings Plus link above.
If you plan to roll your 401 or 457 over into qualified plan such as an IRA or to a Roth IRA, you will need an additional information. Click Here