Expecting a retiring allowance?
If you're leaving a long-time employer and expect to receive a qualifying retiring allowance, there is good news. You may be eligible for a one-time opportunity to slash tax and supercharge your retirement savings.
Canada Revenue Agency's definition of a retiring allowance is broad and includes a severance, a court award and unused sick days, to name a few. Such a payment is normally fully taxed in the year you receive it, possibly at the highest marginal tax rate- unless you take action to reduce the tax bite.
Tax-free rollover
The opportunities are very good if you joined your company before 1996 and even better if you didn't have any pension plan benefits vested in the years before 1989. In either case, you may "roll over" some or all of your allowance to a registered pension plan or an RRSP without any tax or payroll deductions-- regardless of whether you have available RRSP contribution room. Our team can help you with the calculation.
And what about the excess?
The rest will be fully taxed unless you have available RRSP room and make a contribution to your RRSP or a spousal RRSP. If you get your company to directly transfer a payment to your RRSP, you can get the full pre-tax amount working for you right away. If you take a cash payment, as much as 30% will be withheld at source, but you can still claim a tax deduction if you make a contribution before the next RRSP deadline.
Contributing the excess to your RRSP is a good idea even if you need regular income. Though all withdrawals will be subject to tax at tax time, smaller cash withdrawals will attract a lower rate of withholding tax and the money left in your account will grow tax deferred.
You may never have an opportunity like this again in your lifetime. We advise you to contact our team as soon as you know you will be leaving your company. We can help you make the best use of a retiring allowance to build your wealth for the future.
Return to Newsletter
This Report is written by Investment Planning Counsel, a fully integrated Wealth Management Company. Mutual funds available through IPC Investment Corporation and IPC Securities Corporation. Securities available through IPC Securities Corporation, a member of CIPF and a member of the Investment Industry Regulatory Organization of Canada. Insurance products available through IPC Estate Services Inc. Mortgage broker services provided by IPC Save Inc. (ON Lic. #10227).
If you wish to unsubscribe from this newsletter, click here.