— For six years Kirsten Flack was a stay-at-home mom
with small children and a husband who earned a
comfortable income. Then everything came crashing down
the summer of 2012, Flack, now 48, rented a house in
Seattle and started over. She resumed her career and
became a single parent to her two young children.
took several years for Flack to re-establish herself.
After a while, she moved up to a better-paying job but
had few assets and a five-figure debt to the Internal
also was determined to become more independent, and that
meant taking charge of her finances. Last fall she
applied for a free money makeover.
her application, Flack wrote that she wanted to pay down
her debt and learn how to budget, invest and save for
the future. Then, at the end of her application, she
Financial Planning Association of Puget Sound connected
Flack with two executives at Comprehensive Wealth
Management in suburban Seattle. One was Brian Lockett,
the firm’s vice president and wealth manager; the
other was Marc Knauss, a senior adviser.
they pored over Flack’s finances.
divorce really kind of blew a hole in her financial
plan," Knauss said. But he also gave Flack a vote
of confidence because of her sense of responsibility.
"In a few years she’ll be in a good spot,"
attribute in Flack’s favor is her work history. After
working as a nurse, she got a job as a Seattle-based
patient-services nurse for UCB, a global
job pays about $112,500 a year, with the possibility of
bonuses. That puts her above her home county’s
projected median household income of $84,897 for 2016,
according to the state Office of Financial Management.
also gets $1,750 a month in child support.
her comfortable cash flow, Flack has few assets. Instead
of owning a home, she rents in one of Seattle’s older
neighborhoods for $2,400 a month. She has about $7,000
in various checking and savings accounts.
also lacks an emergency fund. A personal line of credit
had an outstanding balance of about $5,000.
is disciplined when it comes to saving for retirement,
and she has contributed regularly to her employers’
401(k) plans. Her Swedish 401(k) account has a balance
of about $106,000, while her UCB 401(k) contains about
also signed up for UCB’s employee stock purchase plan,
which let her buy discounted shares in the company.
Shares in her account were worth about $3,700.
of her more painful financial moments came when she
borrowed several thousand dollars from her Swedish
401(k) plan to pay for attorney fees and other expenses
associated with the divorce.
federal rules, a worker can borrow as much as 50 percent
of his or her 401(k) account balance, provided that the
loan does not exceed $50,000. The borrower then uses
payroll deductions to pay off the loan, with interest.
The money goes back into the 401(k) account.
workers use their 401(k) accounts as ready sources of
credit. About one in five participants have loans
against those accounts in any given month, according to
The National Bureau of Economic Research.
there’s a wrinkle. Borrowers of 401(k) accounts who
then leave their employers must pay off the loans in
full, usually within 60 to 90 days. After that deadline,
outstanding balances are considered withdrawals by the
IRS and taxed accordingly. Borrowers younger than 59 1/2
are also hit with a 10 percent penalty for early
still had the loan on her Swedish 401(k) when she left
the company for UCB. Swedish notified her about the
repayment, but she forgot. Her accountant caught the
oversight months later. "I about died," Flack
make matters worse, for a time Flack had too little
federal tax withheld on her paychecks, driving up the
bill. She currently owes the IRS about $25,000, and she’s
paying the agency $500 a month.
Comprehensive Wealth Management, Lockett and Knauss
looked for ways to help Flack pay down her debt. They
also wanted to come up with a ready source of cash that
she could turn to for unexpected expenses.
urged her to stop buying UCB stock under the company’s
employee stock purchase plan, in part because they say
health stocks are currently overvalued. Then they
advised Flack to sell her shares and use the proceeds to
pay off her personal line of credit.
Lockett and Knauss recommended reducing Flack’s 401(k)
contribution to 5 percent from 10 percent. That would
free up about $375 a month that she could apply to the
IRS debt. Meanwhile, she would still get the company’s
full matching contribution to her 401(k).
told her to roll her Swedish 401(k) into her UCB 401(k),
creating a combined account worth about $119,500 that
she could borrow against in a pinch. The objective was
to give Flack access to cash until she can build a
separate emergency fund.
a lifeline," Lockett said.
her monthly IRS payments to $875 from $500 means Flack
should be able to retire the debt within three years. At
that point, she could use money that was going to the
IRS to instead build an emergency fund capable of
covering six months’ worth of living expenses.
was reassured by what Lockett and Knauss told her.
"I was surprised by how simple the solutions and
suggestions were," she said.
felt like a big weight was lifted off of my