Expert: Allen - 9/10/2009

Question
I took an early retirement package in 1Q of this year.  My severance pay continues until late 4Q (I'm technically on LOA until that time), and of course I have not been able to make contributions to my 401K since I went on LOA.  When I officially terminate in 4Q, I will receive a lump sum for my accrued unused vacation pay from prior years.  Can I have that amount go into my 401K as a contribution for this year, assuming I do not go over the contribution limit?  I don't care about any company match, but would like to delay the tax impact of the vacation payout until I am 59 1/2.

I have asked this question of my company benefits group, but so far have not received an answer.  I would like to be able to tell them it is legal, if it is indeed so.  

Thank you in advance for your help.

Answer
The plan can allow a participant to make a 401k contribution from the payment of unused vacation pay. However, the document must permit it. Some documents do. Others don't. Look at the Summary Plan Description that was provided you when you bacame a participant. If you can't find your copy, ask the Plan Administrator for another one.
In any event if your plan does allow for these contributions the payment must be made either at the time you terminate or within 2 1/2 months after your date of termination. You're probably okay on this if your date of termination is the end of your leave of absence. However, you aren't if your termination is dated on the date you went on leave.
Unfortunately, the only answer I can give you is to be persistent in your discussions with the benefit people.