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Started By
Message
Severance investment advice
Posted on 2/22/25 at 12:43 pm
Posted on 2/22/25 at 12:43 pm
The company I have been working for is shutting the doors. I have 30 years here. There will be a severance. I am 59 1/2. I haven’t talked to a FA yet as I do not know all the details of the severance. Only debt is a truck note.
I have a 401k and an IRA.
How should I invest the severance to avoid taxes as much as possible now.
Thank you
I have a 401k and an IRA.
How should I invest the severance to avoid taxes as much as possible now.
Thank you
2
Posted on 2/22/25 at 1:08 pm to jake wade
Talk to a tax professional.
Likely not a lot you can do regarding the taxes as I’m willing to bet it will be considered ordinary income.
If issued through a W2, I’d make sure your federal withholding is enough to cover potential tax liability which could be affected by way more than just how much the severance will be.
If issued as a 1099NEC, you’ll be on the hook for SE taxes. I’m not even sure if they can do that as the severance pay would have been for employment services and not contracted. Then again, a company folding may feel like they don’t have to follow the rules.
Likely not a lot you can do regarding the taxes as I’m willing to bet it will be considered ordinary income.
If issued through a W2, I’d make sure your federal withholding is enough to cover potential tax liability which could be affected by way more than just how much the severance will be.
If issued as a 1099NEC, you’ll be on the hook for SE taxes. I’m not even sure if they can do that as the severance pay would have been for employment services and not contracted. Then again, a company folding may feel like they don’t have to follow the rules.
Posted on 2/22/25 at 1:17 pm to jake wade
When are the doors closing? Is it possible to max your 401K for this year out of the severance?
Posted on 2/22/25 at 1:59 pm to VABuckeye
Mid April. I had thought about that.
I think $31k is max?
I think $31k is max?
Posted on 2/22/25 at 2:16 pm to jake wade
Correct. $31K is the max. You can also possibly do an $8000 traditional IRA contribution and that can also possibly reduce your AGI. If you're married your spouse can also possibly do $8000 in as traditional IRA to reduce your AGI by another $8000.
The two together could reduce you AGI by $39k for next years taxes. I say could because I don't know your household income as there are limits.
ETA: Her is an excellent Federal Income Tax Calculator that you can play around with and put various amounts in for IRA and 401k deductions to try to create the best situation for yourself.
The two together could reduce you AGI by $39k for next years taxes. I say could because I don't know your household income as there are limits.
ETA: Her is an excellent Federal Income Tax Calculator that you can play around with and put various amounts in for IRA and 401k deductions to try to create the best situation for yourself.
This post was edited on 2/22/25 at 2:30 pm
Posted on 2/22/25 at 2:41 pm to VABuckeye
Excellent! Very helpful. Thank you for your time!
Posted on 2/22/25 at 5:32 pm to jake wade
Man, sorry to hear that. It sucks and makes for some uncertain times.
I've been there a couple of times in my career. Most companies make you sign a non-disclosure agreement, pay your severance based upon grade level/years of service, which is likely to come in a lump sum. Things like additional funds (i.e. PTO, stock purchase contributions accrued etc.) usually come in a separate check. All ordinary income.
Tax reduction strategies? If you can afford it, maybe...
Make a 401k "Catch Up" Contribution.
You can contribute to a traditional IRA.
Roth IRA (contributions to a Roth IRA are made with after-tax dollars, the earnings grow tax-free, and qualified withdrawals are also tax-free).
I've been there a couple of times in my career. Most companies make you sign a non-disclosure agreement, pay your severance based upon grade level/years of service, which is likely to come in a lump sum. Things like additional funds (i.e. PTO, stock purchase contributions accrued etc.) usually come in a separate check. All ordinary income.
Tax reduction strategies? If you can afford it, maybe...
Make a 401k "Catch Up" Contribution.
You can contribute to a traditional IRA.
Roth IRA (contributions to a Roth IRA are made with after-tax dollars, the earnings grow tax-free, and qualified withdrawals are also tax-free).
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