So many of getting severance are going to hit some really high taxes. Here is a suggestion for you to consider but you need to do it before 10/1 so it makes it to RJ from Principal. If you were doing Roth 401k switch to the regular 401k where the monies is are taken out pre-tax. If you can afford it change your percentage as high as you can to get to the max allowable ($19,000 for under 55 and 26,000 for over 55). I was doing a large Roth contribution and I just switched to regular 401K and bumped my rate to 40% to get to the maximum by my last paycheck. Since we are getting severance money as well as payout for vacation (if you had any left) I will be fine. Just need to be slightly frugal for a month. I suggest all consider this strategy again, only if you can afford it.
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Just keep in mind that if you do choose to leverage your 401k.... under the covid cares act (currently expiring 12/31) you can withdraw up to 100K against your retirement without paying the 10% fee, you will be required to pay tax however you are allowed to spread the tax burden over 3 years if you were laid off as a result of COVID.
"I can't afford to do this and will receive under $10k in severance. What is the best way to avoid this high tax rate on severance? I will have to cash in some of my 401k if I don't get another job soon. I am 59 and single and not ready to retire yet. Many were laid off close to retirement. Thanks"
Yes, some of us are in our fifties, not too young but not able to retire yet. Hope that things improve soon and we can get back to work soon. It can feel scary, at times I have those feelings, but we must keep going on. Try to stay positive!
I can't afford to do this and will receive under $10k in severance. What is the best way to avoid this high tax rate on severance? I will have to cash in some of my 401k if I don't get another job soon. I am 59 and single and not ready to retire yet. Many were laid off close to retirement. Thanks.
what excellent suggestions. I'm going to check both FSA and Principal. Wish I could do 50% but it is only going to be 20. Better than nothing for 2 paychecks.
Yes that and max your HSA (if you have one).
HSA to the maximum too
I will increase the percentage contribution of my Principal 401K.
Thank you for the suggestion!
Great suggestion. I’m going to change from Roth to regular 401k. Wish I could do 40%. I’m only going to 20% it will help.