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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 2557
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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I just accepted a severance/early retirement offer with my

Customer Question

I just accepted a severance/early retirement offer with my employer. How do I minimize the tax implications on the cash out package?Thanks.
Submitted: 4 months ago.
Category: Finance
Expert:  emc011075 replied 4 months ago.

Hi. My name is ***** ***** I will be happy to help you.

The employer will withhold 25% so this will most likely cover your federal tax liability. Once received the only option to limit the tax consequences will be to "reinvested" it into IRA, HSA or if you are self-employed int retirement. You can also ask your employer if he could max up your retirement account instead.

Customer: replied 4 months ago.
My question is essentially to avoid or minimize the 25% tax withholding. How do I prevent/avoid this tax burden?
Expert:  emc011075 replied 4 months ago.

You cannot. It is required by IRS. Lump sump severance pay is treated as supplemental wages and has to be taxed at 25% like bonuses for instance. The only way to avoid it would be to convince your employer to keep you on payroll instead of giving you lump sump severance pay.

Expert:  emc011075 replied 4 months ago.

I see you read my respond. Do you have any questions? Is there anything else I can help you with today?