Retirement package strategies?

My dad, 68, recently took advantage of the retirement incentives offiered him at his current job. This includes a rather large initial payout whch will bump him into a much higher marginal tax bracket. I am seeking advice on some strategies he can use to lessen his tax burden, since this payout is going to be used (in part) to fund his retirement.

The only idea I know of which would be simple to do would be to dump as much as possible into an IRA this year, leaving the tax burden till he withdraws it over time. I don’t beleive he will be able to make any more contributions to his 401k plan. He doesn’t have enough deductions right now to make it worthwhile to do a schedule A…house is paid off, etc.

My dad got the idea that he could do income averaging, but I think they repealed that and now it only applies to fishermen and farmers.

Any suggestions would be appreciated.

Talk to a financial planner. Advice from unknown people on the internet may or may not be worth what you paid for it, and this is not something you want to screw up.

I’m not sure you want to talk to a financial planner. They basically want to sell you things. You might want to talk to a tax specialist.
While I am not a tax specialist (just an anonymous internet poster) my guess is that there is not much you can do about it at this point. Beyond IRAs, I don’t think you can do much to ‘tax qualify’ regular income. There might have been a way to do this before he made all his choices when he accepted the package (perhaps he could have elected to receive this money as a continuation of his salary?), but I am not sure this would have helped. The IRS sometimes gets picky about money that has been deliberately delayed (i.e. you could have received it immediately, so that is how they treat it). As I said, go to a tax specialist. If that person says there is a vehicle you can put the money in that would help with the taxes, then go to a financial planner.

There are a lot of planners that charge a fee for a plan and you don’t have to buy anything from them. This might be a good place to start.

crazyjoe’s dad needs to at least talk to a CPA about tax strategies. If he goes to a financial planner, it’s better to talk to one who isn’t selling what he’s advising you to buy. A CPA will charge $150 an hour or more, and a financial planner may be even more than that. It’s worth every penny.

Thanks to all. Dad plans to talk to a financial planner/Tax Accountant type of person once everything is done, but the time between when they offered the package to his dept and when he had to accept it by was a little over 3 weeks…not a lot of time oto do research, etc and still get your mounds of work done. Just casually mentioned to him on Father’s day and the idea of Income Averaging was mentioned by him…nedless to say he hasn’t filed long form in a long time.

One thing to keep in mind is that tax withholding is not the same as the amount of tax he actually winds up owing. I forget the exact rationale, but the withholding on lump sum payments tends to be really high. This might be worth him having a conversation with his payroll department about so that no more than necessary is withheld.

I beleive any payouts like this have to be withheld at the top marginal rate or something like that, and that you can’t adjust it. I know he will owe less than they take, but the thing is this will easily double his income for the year, forcing him to pay taxes at a much higher rate. Since this is a one time thing and my dad really isn’t rich, I’d like to see what we can do to defer some of that tax liability to a year when he’s not getting so much.