I got 'double paid' for the first 7 month's of this year as my old job paid out severance and my new job paid me. My accountant has only just told me I will probably owe $15k in Federal taxes and suggested I max out my 401(k)

However, I have missed the quarterly deadline so that is not an option! Can anyone suggest anything else to minimize my tax exposure? I have to move quick before Dec 31st I am guessing?

  • If you have a paycheck (or bonus) that will be paid on or before December 31, you might be able to persuade your employer to send as much of it as possible to your (nonRoth) 401k so as to make the maximum contribution for 2013, or as close to it as you/employer are comfortable with. Of course, since you might get little in way of take-home pay, this might cause you cashflow problems.... Dec 21, 2013 at 14:41
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    Or persuade your employer to pay it after January 1st.
    – JohnFx
    Dec 21, 2013 at 19:31
  • They didn't withhold enough from the severance? The usual withholding is 25%, so even if it pushed you to 28%, a $100K severance would have a $3K shortfall. How did you come up $15K short? Dec 21, 2013 at 19:57
  • no bonus due and I can't make any 401k changes until January 15th as the new co plan accepts only quarterly payments for changes to deductions. It looks like (opening) a IRA won't help as I am single and my salary is $150k plus. Joe , that is a good question! I got 6 month's severance plus some bonuses for completing tasks (to wind down my division) so I don't know if they affected tax. It sounds like paying an extra month mortgage will have limited benefit. Any other ideas? Thanks for the advice!
    – Karie
    Dec 21, 2013 at 20:05
  • I understand, but regardless of the reason, severance, bonus, commission, etc, the typical withholding is 25%. It would take a $200K severance and 8% shortfall to have you owe $15K. If that's the case, sorry, but you've earned your way to a high bracket. Dec 21, 2013 at 21:42

2 Answers 2


The fact that you have a 401K in your new job means that a deductible contribution to a Regular IRA may be limited. The actual limits for 2013 will depend on some if you are single or married, and does your spouse also have access to a retirement plan at work.

Assuming single:

  • Modified AGI less than 59K IRA Fully deducible
  • Modified AGI 59K to 69K IRA partially deducible
  • Modified AGI greater than 69K No deduction

If you are married the limits are different. But your spouse could also make a contribution to the Regular IRA. Their contribution may or may not be deductible as a separate calculation from your case.

The best part is that the deadline is April 15th 2014. The contribution limit is 5,500 for 2014 or 6500 if 50 or over.

A Roth IRA doesn't get you the deduction you are looking for.

The only other options I can think of is making your January mortgage payment in December.

Keep in mind if you are married and 50 or over you can make $13,000 in contributions, in the 25% tax bracket that will reduce your tax bill by $3,250 which is still far from $15,000.

Ask your accountant if you will owe penalties for underpayment.

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    Making the January mortgage payment in December can reduce taxable income by at most one month's mortgage interest (almost exactly one month if mortgage payments are due on the first of the month and the January payment is made on Dec 31 2013 instead of Jan 1 2014; a lot less if payments are due later in the month. Dec 21, 2013 at 17:30

Given what you've described, I might suggest a charitable fund. When I was in a similar situation, an unusually high income year throwing us into a marginal rate that was two brackets too high, it was time to make a donation to a charitable fund. Schwab and Fidelity offer these. You make a donation that permits a deduction in that tax year, but you then are able to distribute to your charities over the next years.

Of course this only works if you are a regular donator to your charities and wish to fund an account that you need to access each year to make the distributions. It's a way to level out your tax situation while maintaining the regular annual donations.

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    Thanks everyone, i think charity is the way to go. I appreciate everyone's insight and advice. Have a great holiday season.
    – Karie
    Dec 23, 2013 at 19:13

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