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Finances - Wish I Had Known #4  (Updated Mar 26, 2019.)


We asked HPAA members "What do you wish you had known before you left?"

The responses are organized into five articles:
- Heads Up - Surprises and Hazards
- Job and Career Issues
- Benefits Issues
- Financial Issues   [this article]
- Looking at the Big Picture


Also see our ASAP Checklist what to do before losing access to internal systems. (HPAA membership not required)


Questions or comments to: info@hpalumni.org

Finances - Wish I Had Known #4  Reviewed Feb 9, 2020


Note when referring to your old financial records: When the plan was first established in 1984, HP gave its 401(k) program the unique-to-HP name "TAXCAP -- Tax Savings Capital Accumulation Plan." By 1998, HP was referring to the TAXCAP plan as a 401(k) plan. In 2004, the plan was renamed using standard terminology: "Hewlett-Packard Company 401(k) Plan." 1984 HP Annual Report   1998 Measure Article (pages 8-10)   Plan details in 2004 SEC filing

If you move IRA or 401(k) money, be sure you insist that any checks be made out to "[Trustee] FBO [Your Name]" not directly in your name. ("FBO" means "For Benefit Of") While you can work around this, it is best that none of the retirement money touches your bank account.

As always in the financial industry, the time value of your money is disregarded. You will have difficulty catching a special deal, a limited-time rate, or a market opportunity -- and weeks go by with big money in limbo gathering no returns.

If you move any stock, you will need to get a "Medallion Guarantee" at your credit union or bank. SEC website

You will get weird checks and incomprehensible HP pay statements. (For example, you used to get a tiny check from a bank you never heard of for the sale of the remaining fractional stock- purchase share, minus charges and fees -- of course. We used to run a contest -- the largest check anyone reported was $1.78.)

--cg, moderator

I wish I had known...

That I was leaving shortly before the mortgage meltdown and all of its ripple effects   Might have applied for a few more credit cards while I still had a long employment history

How easy it is to upset the IRS (Do lump sum retirement and 401(k) rollovers of $X and $Y into an IRA, report rollover amount as ($X+$Y) on a form 1040 and watch the IRS scream because ($X+$Y) is not $X nor is it $Y. Fortunately a human at the IRS was much more understanding than their computer once I explained what I had done and closed the matter within about 90 seconds on the phone.)

Had I known how long I would be out of work and that, despite massive deficit spending, tax rates wouldn't go up, I would have done a big Roth IRA conversion much more slowly, reducing total taxes owed.

It wasn't explained very well regarding taking a lump sum pension or a monthly amount...  I felt rushed into taking a monthly $260 pension - I regret that decision and it can't be reversed.  I would have rather taken it in a lump sum and invested it - I'm sure I would have made more than $260 a month on the investment.

Also, when I rolled over my 401(k) - there was no one to invest it for me - it sat for 3 months with not making any money at all.  I thought it would be invested at least in what I had it in before with HP.

I'm also paying the Fidelity investment firm to make the decisions on where to invest the money.  That is not going well either.  I pay every quarter big time

I wish I had known about all the different chunks of money that HP had for me in the various plans over the decades. I would have left sooner -- under my own steam!

(I'm not sure if this one is still true.):  Once your termination date has passed, you can trigger payout of your retirement and 401(k) funds via the web, from 401k.com.  Some have reported that if you try to start this through a human, there can be lots of sales pressure, etc.  I found it very simple to get the payouts via the website.  Beware that some payouts are only done once a month, so you may want to start as soon as you are eligible to do so.

Even after you think you have sucked your accounts dry with respect to retirement/401(k) rollovers, keep checking the 401k.com website for at least a few more months. You can be in a situation where, at the time of rollover transfer, you were entitled to certain dividends that won't actually be paid until a later date, so your balance can go from <big number> to 0 back up to <small number>.  And since you can earn dividends even on <small number> it may take multiple iterations to truly empty the account.

Rollovers can take time.  Sometimes you can have money in an account but no longer control its allocation because a rollover has started.  This could be really bad if, during that interval (sometimes far longer than expected), a sudden bear market happened.  You might consider switching to a stable value fund or similarly low-risk fund before asking for a rollover to reduce that risk.

Fidelity does not seem to ever close the 401k.com account, even many months after it's empty.

Check to see if any funds due to you have been turned over to the state as unclaimed/undeliverable.  This is surprisingly common, even for people who haven't changed addresses in 20+ years. 

[See HPAA's page on Lost stock and dividends -- and other unclaimed property.]

I am an Agilent retiree.  But I think this may apply to HP retirees as well. NUA or Net Unrealized Appreciation.  Here is Fidelity's explanation: Fidelity on company stock

With all the post Enron press about "diversifying", most people do not realize that there is a significant advantage to keeping some, if not all of your pre-tax 401(k) money in your employer's stock.  If the stock has appreciated, when the time comes to take it out, you can get it out of the 401(k) with a tax break called NUA.  I haven't found  many financial advisors who know about this.  It was a cold call from Fidelity that told me about it.

Take advantage of the 401(k).  If you suspect you may be affected by a reduction during the next calendar year consider front loading your contributions somewhat.  You may also be able to max out during the notification period.   Tech is volatile and many startups or smaller companies do not offer the same level of matching benefits as HP, build your cash cushion and retirement funds when you can.

As the result of accepting an early retirement offer you may receive some kind of incentives and various payments to nudge you to leave work early. This along with your 401(k) and various other tax sheltered savings along with perhaps a lump sum retirement benefits means that you will have to decide what to do with the resulting chunk of money. The wisest choice is to transfer them all into a rollover IRA account to avoid paying taxes on these payments to you.

The problem for some of us is that you may end up with too much money in the rollover IRA. Because of the recent recession I wanted to be really sure to have a good amount to draw on when I am required to take my Minimum Distribution from my IRA (age 70.5 years) so I was happy to have a big IRA. I have the majority of my money in ETF's and mutual funds. The PROBLEM is now that the stock market is doing so well, my money has grown far beyond the initial healthy sum. As I look into my 70.5th year and calculated the minimum I will be required to withdraw I realize that amount along with social security will be more than I need to live on. I wish I can withdraw less, but that is not allowed.

The next best thing to do is to convert my IRA into my Roth IRA account to reduce the amount in the IRA so my withdrawal can be smaller. The problem is you have to pay tax immediately on any amount you convert.

I realize I wasted the earlier years of my early retirement by not starting the Roth IRA conversion early. Having done so would have meant that I could spread out the annual conversion amount over more years. So each year the conversion amount would be smaller and would not push me into a higher tax bracket as well as making more of my social security benefits taxable. I'm still doing it to reduce my upcoming required minimum distribution. But, had I started earlier I would have been able to lower my tax and keep more of my social security payments.

That I could have accessed my 401(k) at age 55 as opposed to an IRA at 59 1/2 without having to pay a 10% penalty for early withdrawal. I should have left my 401(k) as is... If I hadn't converted my 401(k) to an IRA I wouldn't have had to establish a 72t IRA account.

[ HPAA Finance forum moderator Tom von Alten commented:
This refers to topics often mentioned in this forum, both having to do with penalty-free (but of course not tax-free) means for withdrawing from tax-deferred accounts before age 59-1/2. A readable, short description: "401k helpcenter.com"  Page is half-updated, with the old/stale/PDF link to p575, and a newer link to p590b. --TvA, Mar 23, 2019
noting that the exception for 401(k) accounts applies "if you leave your job at any time during the calendar year in which you turn 55, or later." (It also implies that having a 401(k) account from a previous employer you left *before* 55 disqualifies, a rule I can't readily corroborate from IRS sources.)

It also outlines the so-called "section 72(t) distribution" that works for either a 401(k) or an IRA, and can be started before age 55.

There are other exceptions to the early withdrawal penalty described in the IRS publications.

590 has now become 590A and 590B.  --TvA, Mar 23, 2019

The exceptions are tabulated by the IRS here: Exceptions to Tax on Early Distributions

--TvA ]

Let me echo these comments. I did not know this rule about accessing the 401(k) at 55 and converted both pension and 401(k) to an IRA. So during the recession I had to utilize the 72T which is quite a rigid vehicle to allow withdrawals penalty free. The downside to a 72T which I did set up and am one year away from having it end, is that it does not allow you to move the money out of the institution that you set it up with. Also a 72T causes you to lose control of how much taxable income you have as your fortunes after leaving HP improve. In my case although I tried to research very thoroughly, Fidelity did not provide unbiased information on all the rules. Wish I had known about this forum back in 07.

[ ... the exception for 401(k) accounts applies "if you leave your job at any time during the calendar year in which you turn 55, or later." --TvA ]

I am EER class of 2012 and have had several discussions with Fidelity regarding the "rule of 55" and the flexibility to withdraw from the HP 401(k) without penalty (but with "normal" taxes) before age 59 1/2.  this option only applies to the EER bonus which I rolled into my 401(k).  While I have not yet exercised this option and can't confirm that it actually works correctly, if I go to the "withdrawal" tab of my Fidelity 401(k) online account I do see 2 choices: a partial withdrawal amount (labeled "rollover source withdrawal" which seems to be equal to my EER bonus plus subsequent investment gains) and a full payout withdrawal amount which would close the account.  Because of this flexibility, I have left my 401(k) account as is and won't consider an IRA rollover until after I hit the 59 1/2 year mark.

I've heard that in the latest phased retirement program the bonus is paid out and immediately taxable. if there is no flexibility to roll the bonus into the 401(k), then this discussion isn't relevant (unfortunately) for folks considering this program.  [2014]

[ Ah, a fly in the ointment -- the tax code ALLOWS for this penalty-free withdrawal, but HP's plan (administered by Fidelity) only allows for full account withdrawal, or as described here, all the EER bonus. Very troubling alternative if you need SOME cash flow out of your 401(k) -- taking far more than you need will make for a much bigger current tax bill than one would like. - TvA ]

[This is from a discussion on the HPAA's Finance forum -- another reason why you need to join the HPAA once you are sure you know you are leaving or being laid off.  You are eligible to join the HP Alumni Association if you were formerly a regular, direct employee of Hewlett-Packard, HPInc, or Hewlett Packard Enterprise -- or are in the process of leaving.  No login, no password. No charge, thanks to HPAA members. https://www.hpalumni.org  --cg ]

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