I have received a large severance package and would like to shelter a large portion of it.?

Question

Need info. on an investment that would distribute a monthly income to me, thus avoiding being taxed on receiving a large lump sum.

Answer 1

There's no possible way to avoid taxation on the payout. It is considered ordinary income and is fully taxable. And there's no such thing as a rollover of a severance package as one respondent suggested. He has that confused with a rollover of a qualified pension plan such as a 401(k) into an IRA. You can't do that with a severance package though.

If you have not received the payout yet it may be possible to have it paid out to you over time to keep you from topping out the tax brackets assuming that you aren't already there. That would save you tax dollars in the long run but of course you'd have to wait for your money. If the firm paying it is not willing to take the time value of the money into account the tax savings may not be worth it, however.

It may be possible to minimize the tax bite on the after tax funds by investing it in tax-free securities such as municipal bonds. That said, you should NOT let the taxability of the money or the revenue that it generates be the driving factor in any decisions you make. It would be dumb to put it into a low-yield tax-free muni if you can get a better rate of return after tax on some other investment, for example. And frankly unless you're in the 35% tax bracket already that probably won't be hard to do!

If you are talking about a life-altering amount of money -- i.e. enough to retire on today -- it would be worth your while to consult with a professional financian counsellor. Seek out a fee-based counsellor who charges an hourly rate and does NOT sell investment or insurance products. You want someone who is not motivated by how much additional money that they can make off of you. It may cost you a couple thousand for a comprehensive review of your financial situation but it will be well worth it in the long run.

Answer 2

If you have already received the large severance package, then it is too late to shelter this income at least based on receipt of this money. However, you can invest this money into a charitable annuity, which should give you an immediate tax deduction and provide monthly income that is based on the size of the annuity. This is slightly different than sheltering income because you may not be able to deduct the entire value of the charitable annuity as opposed to having never received the money.

Answer 3

A severance package is earned income, and fully taxable. There is no way to avoid taxes on it. Buy an apartment complex in New Mexico and have income for life (and great tax deductions). Good Luck

Answer 4

to avoid taxes on any part of the lump sum, you must roll the money over directly into the investment, without it ever going through your hands. There are many firms that do rollovers. Talk to any one of them and deal with the one YOU feel most comfortable with.