A client called me on a Friday. She'd been laid off Wednesday. She had eight days to sign the severance agreement and a stack of documents she didn't recognize. "I just don't want to do anything stupid," she said.

That's the right instinct. The first 30 days after a severance package lands are when most of the expensive mistakes happen. Not because people are careless — because everything is happening at once, and the urgent stuff drowns out the important stuff.

Here's the sequence I walk people through.

Week one: don't sign anything yet

Severance agreements usually give you a review period. Under the Older Workers Benefit Protection Act, people 40 and up get at least 21 days, sometimes 45. Use it. The agreement isn't just a check — it's a release of claims, a non-compete clause, a non-solicit clause, and often a non-disparagement clause.

Read the whole thing once. Then read it again. The clauses that get expensive later are the ones nobody flags: vesting acceleration, equity treatment, and how unused PTO is paid out.

If anything in the document references "Section 409A" or "deferred compensation," that's a flag to talk to a tax person before you sign. The penalties for getting deferred-comp wrong are not small.

Week two: the tax math

Severance is wages. It's withheld at the federal supplemental rate — 22% by default, 37% on amounts over $1 million. That withholding rarely matches your actual bracket for the year, especially if the severance pushes you into a higher one.

I run a quick projection. Salary year-to-date, severance lump sum, expected job-search income for the rest of the year. The gap between what's been withheld and what you'll owe is the number that matters. Sometimes it's an underpayment that needs an estimated tax payment. Sometimes it's an overpayment worth planning around.

In your situation

If you have RSUs vesting after termination, the tax picture gets more complicated, not less. Vested-but-unsold shares are still income in the year they vest. Severance plus a big vest can land you in a bracket you didn't plan for.

Week two, also: COBRA versus the marketplace

You have 60 days to elect COBRA, but the meter starts on your termination date — and any care you receive in between counts retroactively if you elect. That's the headline. Here's the tradeoff people miss.

COBRA keeps your existing plan, deductible, and network. It can be expensive — you pay the employer's share plus a 2% admin fee. A marketplace plan through healthcare.gov may cost less, especially if your income for the year qualifies you for premium tax credits. But it likely resets your deductible mid-year and may change your network.

The right call depends on three things: how much medical care you expect over the next year, whether you've hit your deductible already, and what your projected AGI looks like. I do this math with clients before they elect.

Days 15 to 30: the 401(k) question

You have options for your old 401(k). Leave it where it is. Roll it to your new employer's plan when you have one. Roll it to an IRA. Cash it out. The last one is rarely the right answer, but I'll spare you the obvious math on that.

Rolling to an IRA gives you more investment choice and consolidates accounts. It can also lock you out of a backdoor Roth strategy if you ever want to do one — pre-tax IRA dollars complicate the pro-rata rule. That's a real tradeoff for higher earners.

If your old 401(k) holds company stock with significant appreciation, look up "Net Unrealized Appreciation." NUA can let you pay long-term capital gains rates on the appreciation instead of ordinary income. It only works on a lump-sum distribution, and the rules are strict. Get it right or skip it.

If this is your situation

Severance windows close fast. If you want a second set of eyes on the sequence — tax projection, healthcare math, rollover decision — I'm available to walk through it.

Schedule a 30-minute call

By day 30: what should be done

  1. Severance agreement — read, marked up, signed or negotiated.
  2. Health coverage — COBRA elected, or a marketplace plan selected and active.
  3. Tax projection — a realistic 2026 income estimate and an estimated tax payment scheduled if needed.
  4. 401(k) decision — left in place for now, or rollover initiated to the right destination.
  5. Vesting and equity — every RSU, ISO, and NSO accounted for, with dates and treatment confirmed in writing.
  6. Cash plan — how many months of runway you have, at what burn rate, and what's the trigger to change strategy.

The mistake I see most often

People treat severance like a windfall. It isn't. It's deferred compensation for work you already did, taxed as ordinary income, with a clock on every connected decision. The 30 days aren't a vacation — they're a planning window.

The other mistake: signing the agreement to get the lump sum out the door, then realizing later that an equity-vesting clause cost more than the severance itself. Read everything. Twice. Then talk to someone before you sign.

The honest answer on most of this depends on what you have and what comes next. But the framework is the same: review, project, decide, in that order. The expensive mistakes happen when people decide first and review later.

The opinions expressed in this post are those of Jake Song and do not necessarily reflect the views of Kestra IS or Kestra AS. This content is for informational purposes only and should not be construed as personalized investment, tax, or legal advice.