Manage a Severance Package

If you’re changing jobs, you’re not alone. New opportunities, mergers, reorganizations and relocations have caused workers to change jobs more frequently than ever. Whatever the reason for your job change, the way you handle your severance package could have a significant impact on your financial future.

Receive Your Severance Package

Your first critical decision is how to receive your severance package. Some companies offer a choice. Depending on your situation, you may want to take the entire amount in one lump sum, enabling you to reinvest your money as quickly and productively as possible. On the other hand, because severance pay is almost always taxable, you may want to spread out your payout beyond one year to delay taxes on a portion of your money.

Balance Short-term Needs vs. Long-term Goals

Unless you already have another job, you may need a portion of your severance money to pay current bills. However, you should resist the temptation to spend the entire amount. Instead, consider putting the minimum needed into your checking account. Apportion the rest among low risk investments that may provide higher rates of return than your checking account. That way, you’ll keep that money productive until you find another job.

If you already have another job, your severance package provides an excellent opportunity to move closer to achieving your financial goals.

Manage Company Stock and Stock Options

If you’ve been awarded company stock options, your grant letter will outline what you need to do and the amount of time you have to exercise the options before they expire. If you have purchased company stock through an employee benefits program, you may be required to hold your shares for a set period of time. In either case, talk with your financial advisor to maximize your opportunities and minimize any tax or penalty that may be associated with cashing in your stock options and company stock.

Manage Retirement Plan Distributions

Your retirement plan may account for the majority of your severance package. You have several options:

  • Withdraw the money and pay taxes and penalties
  • Transfer the money into a new employer's retirement plan
  • Leave the money in your former employer’s retirement plan
  • Roll the money into an IRA or other retirement plan.  Get more details on IRA Rollovers  
Next Steps
  • This week, make sure to get all your financial paperwork, such as IRA rollover forms, in order
  • Then, schedule an appointment with your financial advisor to discuss the best way to proceed

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