Tax planning at the time of layoff

Posted on Posted in Financial Planning, Tax Planning

An accountant shared a sad story that reminds me of the need for tax planning by ordinary folks.

A 40 year old middle income single guy was laid off from his corporate job last year but apparently did not seek professional financial help until now. He took money out his 401(k) for living expenses without doing a rollover first. He purchased a health insurance policy on the exchange and the agent erred on the calculation of the premium tax credit. He is now late filing and paying about $4,000 in taxes and penalties that could have been avoided if he had met with a financial adviser earlier.

Part of the problem, I suppose, is that there are few systematic reminders to prompt a person leaving their employment to huddle with a tax adviser in order to save money and minimize the impact on the following tax return. Solid financial planning can typically result in the saving of several thousand dollars for a person in this situation. In an ideal world, this would be an “automatic” part of the severance process.

An article that I wrote a few years ago at the peak of the recession titled “Surviving a Layoff” dealt with this topics. The article received several hundred thousand web page views back then but is not as popular today.  The concepts in the article are still valid and so maybe I should revise and republish it.

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