A direct transfer is when you can transfer money directly into an RRSP or RPP pension plan directly from a retiring allowance payout. (A direct transfer can also occur in other situations such as inheriting money from your spouse in an RRSP account. This article will focus on severance pay and how it can be transferred to a retirement account). A retiring allowance is a lump sum amount received after a long period of employment or early termination - severance pay. Please note that a retirement allowance does not include amounts that are earned as regular income. Examples are salary, bonuses, overtime, commissions and vacation pay. If your payment is coming from a one-time lay off or retirement, accumulated sick leave or a court judgement, these amounts would be considered part of the retirement allowance. These are instances where you do not normally earn these monies as income, but received them under unusual circumstances. Why is this important? You may be able to transfer all or part of the severance amount into your RRSP or pension plan even if you have no contribution room available kıdem tazminatı .
When you know that you will receive a retirement allowance, ask your employer what the total amount is comprised of. Make sure you understand the tax rules before you receive the money as it is more difficult to enact a direct transfer once the slip is issued to you indicating how your money was received.
The retiring allowance is broken into two parts: the eligible portion and the ineligible portion.
The Eligible Portion
This refers to the amount of your severance pay that can be allocated to your RRSP account using a direct transfer. On this portion, no taxes would be deducted at the source since they are going into a tax sheltered account (the RRSP or pension plan). You would be eligible to receive $2000 per year of service for this type of transfer if you have years of service with your employer before the year 1996. Note that a retiring allowance may be paid over more than one year. You can transfer amounts paid in multiple years to your pension plan as long as it is eligible for the same tax treatment. If you are getting a multiple year eligible portion payout, you can choose how you want the money to be given to you. If you worked at a company before 1989 and your retirement contributions to your pension plan were not vested to you at the time of your severance, then you can transfer an additional $1500 per year of service until 1989. A fraction of a year is also eligible for this type of arrangement, in that part of a year would be counted as a full year for these calculations. This will depend on how your pension plan or deferred profit sharing plan is set up, so checking with your pension plan administrator or employer is important.
For the eligible portion of the severance payout or the direct transfer, this amount can only be transferred into your RRSP or pension plan. You cannot transfer this money into a spousal RRSP or a spouse's RRSP or pension plan. If your transfer is going to your pension plan or RPP, there may be a pension adjustment calculation that would have to be calculated. This would be done by your employer and reported to the CRA, which is an update of how much contribution room you would have for your pension plan and RRSP. Both the pension plan and RRSP share the same contribution room, so both would have to be accounted for with any changes to your pension plan. If you do not want the payout transferred to your RRSP or RPP and your spouse has available contribution room, you can deposit the monies into their RRSP as a regular contribution. In this case, you would need to take into account the contribution room available.
Non-Eligible Portion
This is the severance payout amount less the amount available for the direct transfer. This amount can be deposited into an RRSP as a regular contribution, the same as for all other regular contributions. You would have to have the available contribution room for this portion of the severance payout. If you are receiving non-eligible payments over multiple years, this can be treated like any other income for multiple years. If you have the room and you want to contribute to your RRSP, you can do so over multiple years.
Tax Strategy
You may want to consider if you are paying taxes or not in the years that you are receiving your severance pay, which will depend on the total income you are receiving from all other sources. If you are making low income after your severance payout, deferring your contributions to those years make not give you much of a tax saving. If you contribute a large amount of money into your RRSP in a year where you have a large payout, this will give you a large decrease in your income and a lot of tax savings.