Learn How a Financial Advisor Can Help You Defer Unused Vacation Pay Into your Deferred Compensation 457 MaineSaves Plans
As you prepare for retirement, you may be considering ways to strengthen your retirement savings. If you’re like many public sector employees, you may have accumulated Paid Time Off (PTO), such as unused vacation time, that you don’t immediately need.
As a State of Maine employee, you have the option to defer some or all of your unused vacation pay into your Deferred Compensation 457 MaineSaves Plan, subject to IRS limits. In 2025, these limits allow up to $23,500, with an additional $7,500 allowed for those aged 50 or older. For many, this is a valuable strategy to consider. Deferring unused vacation pay into your 457 can:
- Lower your taxable income for the year
- Help you avoid a significant tax hit
- Consider placing your funds in an investment or fixed interest rate option that may offer higher returns, depending on your investment strategy
- Boost your retirement savings over time
- Allow you to withdraw the funds in a future tax year, at your own pace
Here’s a quick example to illustrate the benefits.
John has a MaineSaves 457 account with $100,000 in savings. Planning to retire this October at age 65, he has $10,000 in unused vacation pay.
Instead of taking the $10,000 in cash (and paying income taxes on it), John chooses to defer it into his 457 plan, allowing it to grow with his other retirement funds. By deferring this pay, he avoids a substantial tax bill and, as he expects to be in a lower tax bracket in retirement, he will likely pay less in taxes when he eventually withdraws it. Meanwhile, the deferred amount has time to grow.
As you near retirement, remember that simple strategies can maximize your savings and reduce your tax burden. To defer your unused vacation pay, you only need to complete a one-page form.
If you’re considering retirement soon, schedule a call with us, we’re here to help you explore your options!