I will be let go at the end of November, after 25 years with the same company. Theoretically this means a decent severance, but together with my salary, for sure I will get "penalized" with higher taxes.
I maximized 401k ( anyway I was at 12%), I maximized HSA, I will try a backdoor Roth.
What else can I do to reduce my taxable income?
Posted by bunikul
8 Comments
Are you single or married? How much is your gross income normally? What is your gross income this year?
You already covered the big ones 401k HSA Roth. Consider delaying income or accelerating deductions like charitable contributions before you leave. Timing can make a difference.
Any way to get the severance deferred to next year?
My main advice is to not panic. Tax rates are marginal and it’s kind of absurd to ask how to reduce your income.
“How can I refuse this dollar because I don’t want to have to pay a quarter?”
You can look into timing deductions and expenses before you leave. Maybe contribute to a traditional IRA or bunch charitable donations into this year. Also check if any severance can be spread across years to avoid a big jump in taxable income.
Backdoor Roth will not help this year.
A backdoor Roth won’t reduce your taxable income.
There is not a lot you can do as a W2 employee.
Max your 401k, max the HSA, have the wife max her 401k.
IF spouse is not covered by a workplace plan, she can fund a Trad IRA this year.
Whether you can or not, depends where the numbers come out. (you can fund, and back door, but that doesn’t help your AGI or taxes)