When to leave; Dec 2011 or Jan 2012?

[pb4uski]

Based on the inspiration on these boards and years of planning, I am finally pulling the plug on w*rking. While many days I still enjoy my j*b, I just have other things that I want to do with my life.

I will leave around year end, but I have some say in the matter. If I wait until early 2012 it will push my unpaid vacation that I will receive upon leaving (about 6 weeks) into 2012 when my marginal tax rate will be much lower.

Also, I will have some earned income to be able to make a Roth contribution in 2012 if I do this. But this is less of an issue in that I plan to do Roth conversions up to the top of the 15% bracket from now until I start drawing my pension (in about 5 to 7 years) but leaving in 2012 will somewhat reduce the amount of conversions to Roth that I can do in 2012.

I could leave at the end of 2011 if I want to. From a benefits perspective it doesn't make much of a difference since most benefits are earned pro rata (like vacation for example).

Are there other things that i should be considering in deciding whether to leave at the end of 2011 vs the beginning of 2012?

 

[Meadbh]

Congratulations on being so close, p4!

It's really your call. You say that you enjoy your j*b, so if I were in your situation and did not have any major trip planned I would wait till January.

 

[Alan]

Are there other things that i should be considering in deciding whether to leave at the end of 2011 vs the beginning of 2012?

The reasons you give would be enough for me to wait until January. Congratulations on the upcoming retirement.

Does your company have an FSA? If so, you could put some before tax money away in January.

Do you have a dental plan with your company? Is there some dental work, or even a check up and cleaning you'd like to get done while it is still cheap?

 

[pb4uski]

The reasons you give would be enough for me to wait until January. Congratulations on the upcoming retirement.

Does your company have an FSA? If so, you could put some before tax money away in January.

Do you have a dental plan with your company? Is there some dental work, or even a check up and cleaning you'd like to get done while it is still cheap?

Thanks for your response. Two good ideas.

They have an FSA, but I have an HSA.

We are having all our dental work, eye exams, glasses, physicals, etc done before I leave but we were pretty good about keeping up with those anyway.

 

[Lobelia]

If you wait until early Jan 2012, you'll likely receive another month of employer paid health insurance. If you're thinking of quitting in late January, maybe move it to early February for yet another month of health insurance (it sure isn't cheap!).

 

[W2R]

I agree with Meadbh, that it is really your call.

As you have pointed out, you might gain a little financially by retiring one month later. For example, you could put a big chunk of your January salary into your 401K, something you couldn't do in December if you had already contributed the maximum. But also I think a lot depends on how much it is worth to you to retire in December instead of January.

 

[Rich_by_the_Bay]

Are there other things that i should be considering in deciding whether to leave at the end of 2011 vs the beginning of 2012?

Aside from personal time off payout and your Roth, if you have a 401k or 403b you can front-end them with the full year's allowable amount (e.g. $16,500) between Jan and departure date as long as you have other sources of income to carry you through in the interim.

I basically fully funded my 403b before I left in January by deferring most (90%) of my paycheck into my tax-deferred plan, including the income earned in Dec but not paid out until January. But you don't have to work a full year to get the full deferral, other than as your cash needs might dictate.

You might check with HR to see if that's OK. It was a nice way to ring up some tax-deferred savings one last time before leaving the working world.

 

[DeborahB]

If you wait until early Jan 2012, you'll likely receive another month of employer paid health insurance. If you're thinking of quitting in late January, maybe move it to early February for yet another month of health insurance (it sure isn't cheap!).

I discovered to my delight that if I worked until July 2 I got July health insurance at the subsidized group rate. If you check it out, working a couple of days in Feb. might pay off. I also maxed out my 401k and spent a year's worth of FSA money in the 5 months before I left so I got a break there too.

Have fun - either way, retirement is SOON!

 

[pb4uski]

That's what I love about this group - I had not though about goosing up my 401k contributions so as much of my vacation pay as possible goes into the 401K or the fact that I might get all of January on the medical plan. Both additional reasons for waiting until January.

I may even stay for a while longer in 2012 at maximum contributions until I max out my 401K. I'll have to think about that.

Thanks, and keep those ideas coming!!!

 

[Packman]

Depending on how long you have been working, and how much you have earned, by working a bit in 2012, you may increase your lifetime SS benefit. The calculation uses the top 35 years of earnings.

 

[KM]

I have a similar situation next year. I can retire 12/1, but have already decided to go into Jan 2013. Reason is, it will make a difference in my pension, which takes last 5 consective years. If I leave on 12/1, then 2012 does not count, meaning I have to use my 2007 salary in my pensions calculations instead - which makes enough of a difference in my pension that it is worth sticking around another week.

So, if you haven't already, you should check your pension calculations to see if there is a significant difference between 12/1/20xx and 1/1/20xx for you too.

Congratulations!

 

[pb4uski]

Unfortunately, no defined benefit plan at this employer so that is not an issue. Pension that I mentioned in my OP was from a prior employer.

 

[Brett_Cameron]

I agree with waiting until 2012. This group is amazing! All of the reasons/benefits for waiting that I thought of are articulated nicely in the above responses. On a side note, although I may think of them, I am not as talented as the senior members in communicating good reasons.

 

[pb4uski]

I was on the fence leaning to 2012 at the time of my OP, but you all have convinced me that 2012 is the best course, so I will be an early member of the class of 2012!!!

While I need to check and verify that my employer is ok with it, I would like to go on w*rk through the end of 2011 and go on vacation beginning in 2012. On Feb 1, 2012 I would officially resign effective Feb 16, 2012, which will use up my 6 weeks of vacation (1/1 to 2/15) and add health coverage for January and at least part of February at employee rates (rather than COBRA or a private policy).

Further, I'll change my 401k contributions to 100% effective 1/1/12 so while I'm on "vacation" I won't be getting a paycheck but the money that I would have otherwise received for unused vacation will be going into my 401K.

While I'll have no earned income in 2012 (unless I do some other w*rk on the side during the year) I think the benefit of the 401K contributions exceeds the benefit of the Roth contribution since I can accomplish the same end since I'll have more room for conversions within the 15% bracket.

Wow, this is getting exciting!! Thanks to all for the great advice.

 

[MichaelB]

pb4uski, congratulations on putting yourself in a position where you can make this choice. It is quite an achievement.

One more year of IRA/401(k) contributions was my first thought as well. You might want to take a quick look at your '10 tax return to see if there are any tax credits or deductions that are derived from earned income or work.

Unrelated, but if you itemize your deductions you might want to do a quick check to see if there are any you can pull from next year to this. Possibly your marginal rates will fall as your income goes down and a deduction is worth more at your current higher rate than it will be next year.

​

 

[skipro3]

Depending on how long you have been working, and how much you have earned, by working a bit in 2012, you may increase your lifetime SS benefit. The calculation uses the top 35 years of earnings.

I don't think it's going to boost SS, at least not by much; only a few dollars a month at most. SS is weighted heavy on the early years and much less on the final years of paying.

However...
If you wait until 2012 to retire, you will owe SS on any money you earn or collect on your sell back of vacation. If you maxed out SS in 2011, then retired in 2012 with $20,000 of vacation paid back, you will be paying a big chunk of it to SS you wouldn't have by retiring in 2011.
I was planning the same thing you are but one year further out; 2012/2013, where I would max out my 401K and 457 for 2012, then work right up to the end of 2012 and take my vacation payback in 2013 and put it all into the 401K/457 plans until I found out that I would owe SS on that money for the new year. For me, the sell back of vacation is going to be about $40,000 so this is significant.

One more thing; if you have a pension, or will be taking SS, the COLA is going to be based on the fact you need to be retired a full calendar year before you get that COLA. For me, if I retire in December, I get my first COLA in 16 months. If I retire in January, I get my first COLA in 28 months. That's going to bump out that initial COLA missed that first year and compound it's loss over the life of your retirement.

 

[rescueme]

I retired from Mega-corp on the first of the month.

The reason was that if I was logged "as wor*ing" on the first, I would be covered for medical for the month, along with getting an additional month on my (then) retirement cash balance plan credit.

I came in at 7 AM, and left at 9 AM (no celebration - I just wanted to leave after almost 3 decades).

Sometimes, just a few hours make a difference....

 

[pb4uski]

....
However...
If you wait until 2012 to retire, you will owe SS on any money you earn or collect on your sell back of vacation. If you maxed out SS in 2011, then retired in 2012 with $20,000 of vacation paid back, you will be paying a big chunk of it to SS you wouldn't have by retiring in 2011.
I was planning the same thing you are but one year further out; 2012/2013, where I would max out my 401K and 457 for 2012, then work right up to the end of 2012 and take my vacation payback in 2013 and put it all into the 401K/457 plans until I found out that I would owe SS on that money for the new year. For me, the sell back of vacation is going to be about $40,000 so this is significant.

......

Yes, good point, but you also need to consider income taxes. If I retire in 2011, I'll pay 1.45% SS and 28% income tax + state income tax on the vacation pay. If I retire in 2012, I'll pay 5.65% SS and 0% income tax on the vacation pay. Right?

 

[skipro3]

Yes, good point, but you also need to consider income taxes. If I retire in 2011, I'll pay 1.45% SS and 28% income tax + state income tax on the vacation pay. If I retire in 2012, I'll pay 5.65% SS and 0% income tax on the vacation pay. Right?

Why zero on the income tax for vacation pay in 2013? Because you are putting it into a retirement account in 2012? You'll pay taxes on it later when you withdraw it. My state, California, taxes retirement so maybe yours doesn't, so that would be a consideration. Vacation pay is earned income in the year you are paid it, in your case, 2012. Add that 6 weeks of pay to whatever else income you'll have for the year and see what tax bracket that puts you in.

 

[pb4uski]

If I put my vacation pay into the 401k only 5.65% of it will be income in 2012.

For example, if my vacation pay is 10,000, SS is 565, Health insurance and HSA is 435 and my 401k deduction is 9,000, my net pay will be zero and my the W-2 income will only be 565 (10,000 vacation pay - 435 health insurance and HSA - 9,000 401k deductions).

So in 2012 my income will 5.65% of the vacation pay plus investment income on my taxable portfolio. But my deductible expenses and exemptions will exceed my income so I expect my taxable income will be zero so my tax rate will be zero.

True, I will pay taxes on the 9,000 in 20 years or so when I withdraw it from my 401k but it will still probably be less than 28% that I would pay if I take it in 2011 and the pv of those taxes is not consequential to the decision.

 

[old woman]

7.65 not 5.65% in 2012 unless they renew the tax holiday.

 

[obgyn65]

To the OP - based on all the information you have shared so far above, I would wait until early 2012.

 

[pb4uski]

7.65 not 5.65% in 2012 unless they renew the tax holiday.

Oops - you're right - I forgot about the scheduled increase in SS in 2012. Thanks for the reminder.

It doesn't change the decision since it is a choice between over 29.45% if I take it in 2011 (1.45% SS + 28% marginal federal tax + state income taxes) or 7.65% if I take in in 2012 (7.65% SS + 0% income tax). Just makes the 2012 slightly less favorable.

 

[l2ridehd]

I chose to wait until 2012 and work just enough to complete 401K catch up of $5500 and max 401K contribution (only 50% allowed) during that time. By placing $2000 per paycheck (paid twice a month), 50% contribution to 401K which comes off of gross before catch up, I work until 2-15-2012 and will have contributed 100% of catch up, plus as much as possible to my 401K, while minimizing W2 income for 2012. Just what seemed to work best for me. 6 weeks more work for a big plus in the 401K. And I had 4 weeks vacation which I will take during that 6 weeks vs getting paid for it at the end. So really only two weeks working. Again to minimize 2012 W2 income.

You have to do what works best for you and maximize all potential advantages.

 

[chinaco]

Congratulations.

I am one who would be inclined to wait a few weeks if there was some real benefit to doing it.