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<Severance pay is taxable income, and it will be reported as such in Box 1 of your W2 for the year.>

I hope I am not nitpicking here. I generally agree with your statement. However, I know people (former Lucent employees) who had their severence paid through their pension plan. It places the laid off employee in the situation of keeping the funds in the retirement plan, rolling it over to an IRA or taking it as a retirement distribution with the added 10% penalty. If one has been a practicing FOOL and has enough in their emergency fund it can work out to your advantage. If one really needs the funds, it is somewhat onerous.

It seems to be a bit of creative accounting that we have come to see so much of lately. What it does is allow the expense to be charged to the pension plan rather than appear as a current expense to the company. I do not think it is a common practice, but how common it is matters little when it happens to you.

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