Expert: Allen - 3/11/2010

Question
If you receive a severance package from your former employer and the package and the computed taxes on it is quite substantial; can you rollover a portion of it and take either a 401K deduction or an IRA deduction that is more than the $5000 or $6000 limit?

Answer
In most circumstances, money paid in a severance package can only be taken in cash. There may be an exception if your employer allows you to contribute a portion of the package to its 401k plan. You will have to check with your employer.

You can not roll amounts paid in cash to you over to an IRA. You can only roll money in a pension or profit sharing account.

The amount you can contribute to an IRA is determined under a complex set of rules. Generally the $5000($6000, if you are 50 or older) limit applies. The contribution amount will not increase because of the severance package.