I was just laid off. My company is paying me six month's severance, but it isn't really severance because they are paying it in one lump sum (the unemployment commission folks call this a "good will severance payment"). Since I'm in management, it may take me a while to find a job, so I'll probably have to depend on this money as income. But I don't want to lose it all in taxes. Is there any way to defer taxes on this money without having to put it into some sort of retirement vehicle that penalizes you when you withdraw? Perhaps there is some special regard for this type of "severance" wherein you are allowed to put it in an annuity of sorts, and draw weekly or monthly income from Day One, on a schedule that will pay out in full in six months? (and of course, still be able to draw unemployment checks) Am I dreaming?

was just laid off. My company is paying me six month's severance, but it isn't really severance because they are paying it in one lump sum (the unemployment commission folks call this a "good will severance payment"). Since I'm in management, it may take me a while to find a job, so I'll probably have to depend on this money as income. But I don't want to lose it all in taxes. Is there any way to defer taxes on this money without having to put it into some sort of retirement vehicle that penalizes you when you withdraw? Perhaps there is some special regard for this type of "severance" wherein you are allowed to put it in an annuity of sorts, and draw weekly or monthly income from Day One, on a schedule that will pay out in full in six months? (and of course, still be able to draw unemployment checks) Am I dreaming?
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I hate to pinch you and awake the sleeping giant but yes - you are dreaming.

You must remember that dear old Mr Employer wants a tax deduction for that severance pay which equates into ordinary income for you.

Some states do allow for a break for severance pay. NC is one of them - if you are laid off as a result of a cutback, etc the first 35k of qualified severance pay is exempt from NC tax

Other states may offer this too?