Question re PTO pay out

[4tify]

I’m looking to leave my job this fall and wondering about the pros & cons re accumulated vacation time.

I saw on one thread it’s preferable to use the time but I’ll have my 401k maxed + match by the time I leave. I’ve been thinking about using the pay out as an “extras” fund for increased travel/fun in the early months.

Any reason not yo go this route? I expect to have about a month accrued.

[Sandi_k]

When I retire, I plan on having 300+ hours of VL to be paid out. I plan to take a retirement trip to the Caribbean, and rent a catamaran, paying for friends to come along for a week to celebrate.

As long as you adjust your withholding in advance, no reason not to pay it out.

[4tify]

When I retire, I plan on having 300+ hours of VL to be paid out. I plan to take a retirement trip to the Caribbean, and rent a catamaran, paying for friends to come along for a week to celebrate.

As long as you adjust your withholding in advance, no reason not to pay it out.

Oh very cool for you! What adjustment would you recommend to withholding btw?

[seattlecyclone]

The reason to use the vacation instead of taking the payout is you get slightly more money that way. This is especially true if you have a month accrued. Consider the following two possibilities:

Option 1: Give notice on Monday, August 23rd. Work two more weeks. Your last day is Friday, September 3rd. You have 20 days unused vacation at that point, which you take as a lump sum. Your employer health insurance will extend through the end of September.
Option 2: Start a four-week vacation on Monday, August 23rd. Give notice the day you get back (Monday, September 20th). Work two more weeks. Your last day of work is Friday, October 1st. September 6th was a holiday, so you only used 19 of your vacation days. You get the last vacation day paid out when you leave, plus whatever you accrued during that extra month on payroll, plus you get your health insurance covered through October as well.

You work the same number of days in both options. You get more freedom a little bit sooner in Option 1, and you get a little bit more money in Option 2. Not a huge difference either way. Choose what you want to optimize for and do that.

[Sandi_k]

When I retire, I plan on having 300+ hours of VL to be paid out. I plan to take a retirement trip to the Caribbean, and rent a catamaran, paying for friends to come along for a week to celebrate.

As long as you adjust your withholding in advance, no reason not to pay it out.

Oh very cool for you! What adjustment would you recommend to withholding btw?

My plan is to retire in November, so I'll get a December 1 paycheck, and then VL payout. I will file "exempt" for Federal tax in October to make sure it's in effect for the December paycheck.

I will then have a bucket of cash in the new year, with which I can pay any owed taxes, without having to wait months and months for a refund.

[Morning Glory]

I got a giant check for 200+ hours unused vacation from my last job. I wanted to use it to extend my quit date and get a little more pension, but they wouldn't let me. I had so much because they never approved my vacation requests.

[nirodha]

When I retire, I plan on having 300+ hours of VL to be paid out. I plan to take a retirement trip to the Caribbean, and rent a catamaran, paying for friends to come along for a week to celebrate.

My plan is to retire in November

I would be sorely tempted to stretch that into early January. Get paid for the holidays, get the lump sum payout on next year's (assumingly low) taxes.

[cool7hand]

The reason to use the vacation instead of taking the payout is you get slightly more money that way. This is especially true if you have a month accrued. Consider the following two possibilities:

Option 1: Give notice on Monday, August 23rd. Work two more weeks. Your last day is Friday, September 3rd. You have 20 days unused vacation at that point, which you take as a lump sum. Your employer health insurance will extend through the end of September.
Option 2: Start a four-week vacation on Monday, August 23rd. Give notice the day you get back (Monday, September 20th). Work two more weeks. Your last day of work is Friday, October 1st. September 6th was a holiday, so you only used 19 of your vacation days. You get the last vacation day paid out when you leave, plus whatever you accrued during that extra month on payroll, plus you get your health insurance covered through October as well.

You work the same number of days in both options. You get more freedom a little bit sooner in Option 1, and you get a little bit more money in Option 2. Not a huge difference either way. Choose what you want to optimize for and do that.

Practically speaking, what company would allow this? Most organizations permit only one week of consecutive vacation time, maybe two.

[bbqbonelesswing]

I’ve been thinking about using the pay out as an “extras” fund for increased travel/fun in the early months.

Any reason not yo go this route? I expect to have about a month accrued.

IMO you should treat it as any other chunk of money according to your investment plan. If you would usually invest a windfall, so that. If you're all set already, I don't see any problem with having fun with it.

[seattlecyclone]

The reason to use the vacation instead of taking the payout is you get slightly more money that way. This is especially true if you have a month accrued. Consider the following two possibilities:

Option 1: Give notice on Monday, August 23rd. Work two more weeks. Your last day is Friday, September 3rd. You have 20 days unused vacation at that point, which you take as a lump sum. Your employer health insurance will extend through the end of September.
Option 2: Start a four-week vacation on Monday, August 23rd. Give notice the day you get back (Monday, September 20th). Work two more weeks. Your last day of work is Friday, October 1st. September 6th was a holiday, so you only used 19 of your vacation days. You get the last vacation day paid out when you leave, plus whatever you accrued during that extra month on payroll, plus you get your health insurance covered through October as well.

You work the same number of days in both options. You get more freedom a little bit sooner in Option 1, and you get a little bit more money in Option 2. Not a huge difference either way. Choose what you want to optimize for and do that.

Practically speaking, what company would allow this? Most organizations permit only one week of consecutive vacation time, maybe two.

I worked in software. A vacation this long was never a problem as long as it was communicated far enough in advance.

[Sandi_k]

When I retire, I plan on having 300+ hours of VL to be paid out. I plan to take a retirement trip to the Caribbean, and rent a catamaran, paying for friends to come along for a week to celebrate.

My plan is to retire in November

I would be sorely tempted to stretch that into early January. Get paid for the holidays, get the lump sum payout on next year's (assumingly low) taxes.

Nope. January/February is a peak work time in my job. In addition, my pension will be 90%+ of my working paycheck, plus I plan to withdraw an additional $25k (plus VL) for fun in Year One of retirement, so I will NOT be in a lower tax bracket.

And being able to have the holidays without thinking of work deadlines will be AWESOME.

[simonsez]

The reason to use the vacation instead of taking the payout is you get slightly more money that way. This is especially true if you have a month accrued. Consider the following two possibilities:

Option 1: Give notice on Monday, August 23rd. Work two more weeks. Your last day is Friday, September 3rd. You have 20 days unused vacation at that point, which you take as a lump sum. Your employer health insurance will extend through the end of September.
Option 2: Start a four-week vacation on Monday, August 23rd. Give notice the day you get back (Monday, September 20th). Work two more weeks. Your last day of work is Friday, October 1st. September 6th was a holiday, so you only used 19 of your vacation days. You get the last vacation day paid out when you leave, plus whatever you accrued during that extra month on payroll, plus you get your health insurance covered through October as well.

You work the same number of days in both options. You get more freedom a little bit sooner in Option 1, and you get a little bit more money in Option 2. Not a huge difference either way. Choose what you want to optimize for and do that.

Practically speaking, what company would allow this? Most organizations permit only one week of consecutive vacation time, maybe two.

Being a fed.  My old boss used to take a monthlong vacation every summer. 

The idea that vacation time a person has earned/accrued planned out in advance could be turned down is shocking.  I've never turned down any of my employees' requests nor have I had any of mine turned down.  I think I've only done more than two weeks once though. 

Then again, wife is a teacher and she gets 3 days of vacation.  So I guess there's just a lot of variation with vacation policies.  I assume the "bigger the machine" (size of company, agency, etc.) there is a larger supply of labor to smoothe out widget servicing and/or production.

[Car Jack]

I'd recommend that step #1 is to learn and understand your company's PTO payout policy.  I was with a company who paid out at 75% in cash.  The company I'm with right now says "Tough luck, you get nothing".  It's also a use it by Dec 31 every year or lose it policy.

I just wanted to point out that you really can't assume you'll get the hours in cash.

[nirodha]

In addition, my pension will be 90%+ of my working paycheck

That is a great pension. It changes everything.

We're starting to live on about 25% of last year's AGI. The only taxes we'll realize are to reduce RMD's at 72. Working into early February was a strong financial win for us. Bonus, profit sharing and annual raise all happened at end of year. We also took 2 months of the premium benefits - a good deal on checkups, eye exams, fsa dollars etc. After stuffing the 401k, vacation payout (higher due to the raise) was tax free as well.

[robartsd]

I'd recommend that step #1 is to learn and understand your company's PTO payout policy.  I was with a company who paid out at 75% in cash.  The company I'm with right now says "Tough luck, you get nothing".  It's also a use it by Dec 31 every year or lose it policy.

I just wanted to point out that you really can't assume you'll get the hours in cash.

Glad to live in a state where such policies are not legal.

[FLBiker]

As long as you adjust your withholding in advance, no reason not to pay it out.

Could you say more about this?  I'm going to be leaving my job this summer, and I've got ~300 hours of leave that will be paid out.  Is the risk that it would be taken in tax (but that I'd get a refund later)?  Or is there another issue?

[seattlecyclone]

As long as you adjust your withholding in advance, no reason not to pay it out.

Could you say more about this?  I'm going to be leaving my job this summer, and I've got ~300 hours of leave that will be paid out.  Is the risk that it would be taken in tax (but that I'd get a refund later)?  Or is there another issue?

Yeah I think extra withholding would be the concern. The withholding formulas generally assume that you'll be making the same amount in the current paycheck for every pay period during the year. If you're getting an extra month's worth of pay in your final paycheck you'll get a lot withheld at a high tax bracket unless you change your withholding settings before that. You'll of course get the extra refunded when you file your taxes, but if it's easy to avoid giving the IRS an interest-free loan you might as well do it.

[FLBiker]

As long as you adjust your withholding in advance, no reason not to pay it out.

Could you say more about this?  I'm going to be leaving my job this summer, and I've got ~300 hours of leave that will be paid out.  Is the risk that it would be taken in tax (but that I'd get a refund later)?  Or is there another issue?

Yeah I think extra withholding would be the concern. The withholding formulas generally assume that you'll be making the same amount in the current paycheck for every pay period during the year. If you're getting an extra month's worth of pay in your final paycheck you'll get a lot withheld at a high tax bracket unless you change your withholding settings before that. You'll of course get the extra refunded when you file your taxes, but if it's easy to avoid giving the IRS an interest-free loan you might as well do it.

Thanks, that makes sense.

[4tify]

I'd recommend that step #1 is to learn and understand your company's PTO payout policy.  I was with a company who paid out at 75% in cash.  The company I'm with right now says "Tough luck, you get nothing".  It's also a use it by Dec 31 every year or lose it policy.

I just wanted to point out that you really can't assume you'll get the hours in cash.

Thanks I just confirmed I’ll get the full pay out. Great advice!

[4tify]

When I retire, I plan on having 300+ hours of VL to be paid out. I plan to take a retirement trip to the Caribbean, and rent a catamaran, paying for friends to come along for a week to celebrate.

My plan is to retire in November

I would be sorely tempted to stretch that into early January. Get paid for the holidays, get the lump sum payout on next year's (assumingly low) taxes.

I considered this too. In fact my plan pre-covid was to quit first week of January with 2 months notice an put 100% into 401k. But dumb pandemic screwed me up. I guess I could work for an extra 6 months but not sure it’s worth it.

[fishnfool]

I say "go for it"!  I had to cash out sick leave and holiday pay. But when I retired I was able to convert accumulated sick leave into retirement service credit giving me an extra .25 year more service. Translated into dollars it gave me an extra $45 per month for life.

[Sandi_k]

As long as you adjust your withholding in advance, no reason not to pay it out.

Could you say more about this?  I'm going to be leaving my job this summer, and I've got ~300 hours of leave that will be paid out.  Is the risk that it would be taken in tax (but that I'd get a refund later)?  Or is there another issue?

Yeah, you can file "exempt" for the last couple of paychecks, which means the VL payout won't have the huge withholding formula applied. Just make sure you've paid at least as much through withholding that year as you did the previous tax year, to avoid penalties.

[FLBiker]

As long as you adjust your withholding in advance, no reason not to pay it out.

Could you say more about this?  I'm going to be leaving my job this summer, and I've got ~300 hours of leave that will be paid out.  Is the risk that it would be taken in tax (but that I'd get a refund later)?  Or is there another issue?

Yeah, you can file "exempt" for the last couple of paychecks, which means the VL payout won't have the huge withholding formula applied. Just make sure you've paid at least as much through withholding that year as you did the previous tax year, to avoid penalties.

Thanks!  My taxes are going to be a bit complicated regardless, as we moved to Canada from the US last year -- thus, we'll be paying Canada first and the US second (and probably not at all).  We're going to use a cross border tax pro for the first couple of years, until I'm confident in doing it myself again.

[pdxvandal]

Love the OP's plan. I initially had this plan to cash out the max 320 hours, but other posters have made me reconsider by taking some vacation time, then putting in your notice. I've heard of others in my employer "vacationing out" which I need to look into more closely, where they're still on payroll but not working, accruing benefits for several weeks (or longer) before officially leaving the org.

Fortunately, my org pays out the 320 vacation hours in addition to 60% sick time. I plan to get about a $26k gross payout whenever I pull the plug in 2022 or 2023. My org also offers 48 hours personal time in January 1 each year, so I've also thought about taking a 10 day vacation in January, then peacing out.

These are first-world problems for FIRE-ees!