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Author: jaybev46 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Taxable Lump Sum Payment Date: 5/11/1999 3:26 PM
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The company I work for is offering 104 weeks severance pay as an enticement to retire early.
I can receive this money 3 different ways:
Lump sum this year, two lump sum payments (one this year and one next), or weekly for 104 weeks.

Can anyone give me direction as to how I should take this money base on the options above?

Have a good day and thanks.
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Author: 39dopey One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10491 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/11/1999 3:55 PM
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I can receive this money 3 different ways:
Lump sum this year, two lump sum payments (one this
year and one next), or weekly for 104 weeks.


This is a classic present value problem, except for the tax issues:

The first question is how much you would have to pay in taxes if you take the lump sum this year vs. over two years, or three tax years if spread over 104 weeks. You know your tax rates and other expected income and such details, so that should be easy to figure.

The only other big question is whether you expect to make more in market returns by getting the money sooner than you would by spreading the tax liability. I'd pick a reasonable market return such as 10% to 12% for this, rather than the return on a particular Foolish portfolio, but this number is up to you.

It's pretty easy to figure how much you'll have left in 104 weeks after taxes under an assumed rate of return, and the right answer is whichever option gives you the most money once taxes for 1999, 2000, and 2001 are paid. Of course, you need to figure how you would actually handle transactions under the weekly payments plan -- I assume you're *not* going to make 416 purchases in an ongoing perfect Foolish Four investment.

Whatever you choose, good luck!

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Author: TheBadger Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10492 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/11/1999 4:26 PM
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Assuming that there is no interest rate discount attached to the lump sums; then, from a tax and investing perspective the pbest deal would be two lump sums; one today and one on 1/2/2000.



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Author: WilliamLipp Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10493 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/11/1999 5:58 PM
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jaybev46 Date: 5/11/99 3:26 PM Number: 10490
104 weeks severance pay

Lump sum this year, two lump sum payments (one this year and one next), or weekly for 104 weeks.


I'd treat it as a wealth optimization problem. I think the big difference is whether taxes would higher in one year or two - that depends on other income in the second year, and where you fall in the schedules for this year. A modestly higher tax rate for this year might be worth it to get another year of growth in the market. Figure out the tax rates, pick a market growth rate, and crank out some scenarios.

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Author: johnbarb Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10546 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/13/1999 6:24 PM
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Given the tax consequences, spread it out over the tax years -- taking as much as early in the year that fits into that year's tax situation.

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Author: grayfoxpa Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10553 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/14/1999 12:09 AM
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if your retirement age, take the lump there are some considerations though like can you afford to retire? are you not happy in your job /or if you plan to keep working are you marketable? consider taking the lump and investing it /if possible

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Author: hilet Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10554 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/14/1999 8:37 AM
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An additional consideration might be unemployment compensation. If this is a severance payment, it implies the elimination of your job, and you might be eligible to collect unemployment. If so, how you take the severance payment could affect how you collect the unemployment. The rules vary from state to state, so check with your local office.

Also - some people might be offended at the idea of collecting this. I don't encourage or discourage you on this - just wanted you to be aware that it's a consideration.

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Author: burney22 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10559 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/14/1999 9:00 AM
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ALWAYS, ALWAYS, ALWAYS TAKE THE MONEY AND RUN. AFTER YOU RECEIVE IT YOU'RE THE ONE IN CONTROL.

GOOD LUCK

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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10564 of 76418
Subject: Re: Taxable Lump Sum Payment Date: 5/14/1999 1:58 PM
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I would take the 2 lump sum payment. (this way you can split it into 2
tax years)

The weekly option accomplishes the same thing, but you have to wait 104 weeks to
get all the money.

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