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Banking unused vacation time

E-mail|Link Posted by Jill Boynton October 20, 2009 10:29 AM

President Obama announced in September several initiatives to help and encourage Americans to save for retirement, including the ability for employers to let workers transfer the value of unused sick time and vacation time to their company retirement plan. What you have not used at the end of the year can be turned into cash and deposited to your 401(k) or profit sharing plan. The value of the contribution is still subject to the limits for retirement plans (example: $16,500 to 401(k) plans for employees under age 50) but may help some workers boost their account values and get a valuable tax deduction. (The ruling does not apply to IRAs or SEP-IRAs.)

Offering this benefit to employees may require the company to amend their plan provisions and, because it’s not required, is up to the discretion of the company. Therefore it may not be attractive to employers unless the company allows employees to roll over unused leave from year to year, creating an increasing liability to the company. If you “use it or lose it” the company would probably rather you “lose it” than have to pay it to you.

While this may boost the retirement accounts of some dedicated (or workaholic) employees who don’t use their available vacation time, I’d rather encourage you to take the paid vacation time to which you are entitled. The benefits in terms of stress reduction and rejuvenation can outweigh the dollar value. In addition if you are sick then stay home – especially this year with the H1N1 flu in the air. Yes, we do need to increase our savings rate but it won’t matter much if you work yourself into poor health.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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About the contributors

Jill Boynton is co-founder of Cornerstone Financial Planning in Newington, N.H. Along with traditional financial planning services, Boynton provides analysis specifically for divorce.

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.