Help a Reader: Buying Vacation

Here's an email I received from a reader:

I typically need an extra week off on top of the two weeks of vacation offered by my employer. There is no problem with my taking this time off as unpaid.
 
Now my employer is allowing us to purchase additional vacation time, and the option of taking the leave as unpaid remains. My head is spinning when I try to figure out which is the better deal or if it's pretty much a wash. Here are some details of the vacation purchase plan:

• "Employees may purchase three, four, or five days of additional leave for 2009 with pre-tax dollars. Pre-tax deductions will begin in January and continue for 22 pay periods."

• "The cost of Purchased Vacation is based on the employee’s December 2008 rate of pay." This is the only part that seems to be a clear advantage to the plan, assuming I get a raise in 2009.

• "Any purchased vacation deductions not taken in 2009 will be deducted the following year as a post-tax deduction."

If you are familiar with this sort of arrangement and can comment it would be greatly appreciated.

I'm not familiar with it. What advice do you all have?

Comments

[Kevin M]

Seems like a big hassled just to save a little tax. Unless I'm reading it wrong I think I would just take it unpaid.

[Greg]

Huh?

Do you pay tax when you collect it back?

Is it "Use it or lose it"?

How much would you save over putting a lump amount in a CD until vacation time?

Is the cost of a purchased vacation day more than taking an unpaid day of leave?

[Rick]

I would ask your HR representative. I'm sure they would be much more knowledgeable about their own program than a random blog. Not that FMF isn't knowledgable or anything ;-), but that's what HR is there for, to answer your questions about these benefits.

[Money Minder]

I worked for a bank in the 90's in Canada that offered this arrangement. We could purchase up to 5 extra vacation days per year. Basically, one week's salary was deducted over 26 pay periods (pre-tax) and when I took my self-paid week off I saw no difference on my paycheque as it was paid back to me net of deductions (after-tax). Does that make sense? You could do it yourself, just set aside equal amounts each pay to save the equivalent of one week of net pay, then when you take the week off you have saved the money to pay yourself. My employer also offered a sabbatical version of this plan where you could work 4 years and take the 5th off using the same scheme. While your employer is hanging onto this pre-tax money for you will they flow through any interest to you that they may earn?

[plonkee]

It's better to buy the days if you will definitely use them and you will get a raise in early 2009. Without a raise, it's a wash.