Trip to the Vet: A Personal Finance Story (Chap. 11)

Authors’ note: 

Explaining personal finance can be pretty dull. That’s a problem, if you need to learn personal finance.

On a plane from St. Louis to Seattle, I decided to try and fix the problem. What if I could wrap some personal finance concepts inside of a quirky (funny?) short story? My goal here is to present some information, and then add another step in the story. So, when you get to the end, you’ve been reminded of an personal finance concept- but you’ve received the information in a light-hearted way.

This blog post explains the benefit of funding a retirement plan, and how a retirement plan rollover works.

Anyway, that’s the goal here. The stories are written in chapter order, so that there is a logical flow for the reader. Enjoy!

Dan was on his way to the vet when Cindy called.

“Did you feed Louie this morning?”

“Yeah- I’m gonna be about 10 minutes every to the appointment”. Dan glanced at the clock on the dashboard.

“She wasn’t supposed to eat for 12 hours, because of the surgery!” Cindy paused. “Should you still go?”

Dan muttered to himself as he pulled over. “Lemme call the vet and ask”. By this time, Louie was shivering in the front seat and starting to whine. As Dan spoke with the vet’s office, Louie was barking so loud that he had to crack the car windows.

“You know what, we’ll just reschedule- thank you.” Dan hung up and headed home. As he dropped off Louie at home, his brother Dan called.

“OK- here’s the deal. I’m excited about the new job, but I’m confused about how to handle my retirement plan.”

“Yeah- I got that email with your last account statement. You’re in a 401(k) plan, so I sent you some notes about how your retirement plan works. Check out that email I sent.”

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Dan opened the email and read the notes:

  • Qualified plan: Your earnings are tax-deferred, so thet are not taxed until you take money out at retirement.
  • Funding: You can invest dollars into the plan before they are taxed. The statement says that you’re contributing 2% of your pre-tax salary into the plan.
  • Matching contributions: (Most important) Your employer matched 2%- they added another 2% to match the percentage you put in. The entire 4% of your salary grows on a tax-deferred basis- which allows you to accumulate a large amount in savings.

“So, I understand that the company match is big. Let’s talk about what I do now that I’m moving to the new place.”

Kevin explained the details as he typed in another email to Dan. “The key is to keep your funds in a tax-deferred account, and you can do that with a retirement plan rollover. You can move your account balance into another retirement plan as long as you complete the rollover within 60 days of withdrawing the funds.”

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Kevin paused for a minute. “I like the bucket analogy, so think of your current balance sitting in a bucket. When earnings go into the retirement plan bucket, they aren’t taxed. When you do a rollover, you pour the contents of the first bucket into a second retirement plan bucket. The rollover keeps all of the dollars in a bucket- nothing spills out.”

Dan opened the new email from Kevin:

Rollover Steps to Take:

  • Request a distribution from your current retirement plan.
  • Open an Individual Retirement Account (IRA) for your rollover balance.
  • Start investing in a retirement plan at your new job (if they offer it)

“Keep in mind that you can move the IRA balance into the retirement plan at the new job- it’s an option, if the new plan has a good track record of performance.” Kevin added. “You don’t have to use an IRA account, but it’s a simple way to move the funds. You can leave money in the IRA, or move it.”

Dan nodded as he thought to himself. “It sounds like a really need to invest in the new retirement plan, if they offer a company match. OK- I think I know what to do.”

As he checked email once more, Dan laughed. “Well, I’ve got an email with the subject line: ‘You may have a new arrest record.’ I guess I better check it out.”

Kevin chuckled. “Ha! That’s something you’d probably remember off the top of your head. Good luck!”

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies



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