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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Tax shelter a portion of severance?
Expert: Helen P. O`Planick, EA
Date: 10/4/2008
Subject: Tax shelter a portion of severance?
Question
Hi Helen,
I found out a few days ago, that my job for the past 26 years is being consolidated into our main office, 120 miles away. I am being offered a one year severance.
I understand from reading one of your previous questions, that severance is taxed just like any other income. When paid the severance, I understand that my normal 15% pretax 401K deduction will not automatically occur as it had prior to this. My question is this: Can I tax shelter a portion of this severance on my own somehow?
Answer
You can contribute to an IRA or a ROTH IRA. HOWEVER, for a traditional IRA, you may or may not be deduct your contribution as you have been covered under a retirement plan in the current year. If you can wait to get the pay in 2009, and do not work for anyone in 2009 that has a retirement plan, you could deduct the IRA at that time.
Helen, EA in PA
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