Bryce Yehl

Don’t think I ever mentioned it, but my employer sold their data centers and dedicated web hosting assets (including me) to another company a few months ago. It was great news to us and many good things are already happening. Anyways. This week is my first on new company’s payroll and I arrived at my office this morning to find an information packet regarding the end of my employment with the old company. It’s the usual benefits this, COBRA that, blah blah blah. And something about my severance being “voluntary”, which I suspect releases them from unemployment obligations should I file in the future. I can’t think of any reason not to drop that page in the shredder…

And then there was the page about my 401k account. I can do nothing and my balance will be rolled over to a crappy-but-free Traditional IRA. Or I can direct a transfer to a Traditional IRA of my choosing. Or roll it over to the new company’s 401k plan free of charge within 90 days (assuming their 401k is ready by then). Or take the distribution with penalties.

So I go about researching. And I come across this thing called the Katrina Emergency Tax Relief Act (KETRA). There’s something in there about Early Distributions from retirement accounts without penalty for those in the “Disaster Area” that suffered “Economic Loss.” It just so happens that I live in one of the “Disaster Areas”, and I’m pretty sure I suffered an “Economic Loss” — missed a few days of work, had food spoil due to power loss, stubbed my toe and had to purchase a band-aid, had to buy gas so I could return my mom’s library books because the buses weren’t running, whatever. Katrina was more of an annoyance than anything else, her impact on my wallet was a drop-in-the-bucket compared to Wilma. But there ain’t no WETRA…

So I can take back my money, and the company’s contributions, without the 10% penalty. No 20% withholding either, just regular taxes next tax day. And I can spread recognition of the income over three years, not that it really matters for $x,000. Or put the money back into a Traditional IRA within three years and treat it as a non-taxable roll-over.

I find this very interesting. My bank balance is much lower than I’d like it to be — the new car, car upgrades, higher operating expenses, Wilma, and Christmas have have cut my savings rate for the second half of ‘05 to nearly zero — and I’ve been wondering, “Why am I banking all of my vacation time for this summer when there’s no way in hell I can save enough money by May to spend all that time in Europe without sleeping on someone’s couch the whole time? I’d have to blow half the proceeds of the future sale of my old car, and I was looking forward to spending that money on a convertible.” And along comes Uncle Sam offering me a free loan against my 401k that I don’t have to repay if I don’t want to.

Ok, it’s not really a loan. If I pay it back there are opportunity costs for the time it was absent. If I don’t pay it back then I miss out on decades of compounding and have to pay the taxes.

Aside from that, what am I missing? It seems like a pretty sweet deal.

This reminds me that I need to open a Roth IRA…