Transfer of a Retiring Allowance into Your RRSP

Losing a job is difficult under any circumstances, however it may present you with an opportunity to increase the value of your RRSP.

Under the retiring allowance rules, all or part of your severance package may be rolled into your RRSP. Canada Revenue Agency allows you to transfer $2,000 for each year or part year of service with your employer before 1996, plus an additional $1,500 for years of service prior to 1989 for which you were not a member of a vested company pension plan or deferred profit sharing plan. By tax sheltering as much of your retiring allowance as possible in an RRSP, you are able to defer paying tax on the amount you transfer as well as all of the income it will earn. A retiring allowance rollover won’t impact your regular RRSP deduction limit.

Unless you know that you require immediate cash, you should consider transferring as much of the retiring allowance as possible. If later on you find that you need to use part of your retiring allowance to meet expenses, you can simply make a withdrawal from your RRSP and pay tax on the amount withdrawn. On the other hand, if things work out so that you do not have to make any withdrawals, you have taken full advantage of the one-time opportunity to significantly supplement your RRSP and benefit from the tax-deferred growth of an RRSP.

For more information on retiring allowances, call me at: 604.535.4306 to receive a copy of the article Retiring Allowances – The Silver Lining.