Finances - Wish I Had Known #4
(Updated Mar 26,
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
- Looking at the Big Picture
Also see our
– what to do before losing access to internal systems. (HPAA
membership not required)
Questions or comments to:
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
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
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.
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
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
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
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
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
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
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
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:
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.
has now become 590A and 590B. --TvA, Mar 23, 2019
The exceptions are tabulated by the
Exceptions to Tax on Early Distributions
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
[ 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.
The HPAA is operated by former
employees who volunteer their time. Not officially endorsed or supported
by any company.