OK fellas--

I'm going to end up with a small severance from the USAF (they are buying out my retirement) and it will be considered "income" for this year-- AFTER my normal pay.

They will automatically withhold like 25% or so, but I'm hoping to avoid taking it in the shorts at tax time because on paper I will appear to have had a year of 6-figure income. That makes me rich, and hence evil, in the eyes of the IRS.

Assuming I've already maxed out IRA for both myself and my wife, setup a Coverdell for my daughter, and perhaps setup a MSA, what more can I do? I've already done TSA through teh guvmint...

Thanks for your advice.

jh

 

I am not sure if they still have Roth IRA's but if they do get those also and max them out - $5,000 per individual I believe. This is tax free money when you take it out. Another option is to start a biz of some sort, a biz can write off so much that it is not even funny, trust me I know.

 

A Roth wouldn't help me this year, because a Roth uses post-tax dollars...

 

Is it possible to delay it until after the first of the year? Just 2 more months.

I know where I work, we have alot of guys who wait until after the 1st of the year to retire so that when they get a lump sum check for Vacation, Sick time etc. it doesn't hit them all at once......in addition to normal years pay.


Do you have access to a 401k plan you could max out just for this year?

What are your plans after retirement from the AF?

 

Hohn, i sure aint a tax expert, but my understanding from several of the retired adn retiring military guys here is that you can avoid the capitol gains and income penaltys IF you invest it all back into a 401 type plan..
might want to talk to a financial advisor about it,....

 

The "401K" for the military is the same TSP all gov't employees get. Contributions are capped, but I'll have to find out exactly what the limit is. I've been doing 15% of my pay, so I might be close.

I'm not "retiring" from the USAF-- I'm just getting out. They are forcing people out and I'm disinclined to fight to stay in, so I'll accept their modest parting gift and forfeit my retirement though I'm halfway there (10 of 20). I'm still young enough that I have options, and I'd prefer to be home more for my family. Perhaps I'd be happier in another military specialty, but I think it's just better to get out completely for now. This isn't the best time to be in, with endless budget constraints and constant miracle working required just to get by. At least we'll have newer planes soon.

I'm hoping I can stash as much of the severance as possible to keep the grubby mitts of the Beltway Bandits out of my pocket.

So to speak

 

OK, we have hired two recent military retirees and i have been listening to them discuss hwo they are "hiding" their lump sums... I think they made a mistake taking it that way, but "it aint me"...
another thought, depending on where you are, is a tax defered or tax sheltered annuity.. Kansas has a program for saving for your kids college that is tax deferred.....

 

Several considerations. You said the money will be paid and you will have to pay the taxes. Is there some way you can defer the payment? If the money could be deferred you could take payment at a later date and probably be in a lesser tax bracket. The federal tax schedule goes from 25% to 28% at +/-$128,500 this year. The next step up is around $195,850. Best advice is to talk to a tax professional. Ed B

 

Hohn, Is this a take it or leave it deal? When is the expiration of it? Will they consider stalling it for 2 more months for you and pay you on Jan. 2nd or something like that?

 

How about we set DTR up as a non-profit and you make a donation large enough to take care of all your tax problems?

 

im taking donations for my beer fund, and also my truck fund

 

I kick myself in the butt for taking VSI/SSB in 1994. Think good and hard about getting out. I went into law enforcement as soon as I got out. Some of the fellas in my academy class were retired military. At the time I didn't think much of it. This year I would have retired from the service, I think more about it now. Ten years is a bunch of time to walk away from. Good luck with whatever you decide.