Making the most of your severance
My husband will be receiving a severance package. How much is heallowed to transfer to his registered retirement savings plan (RRSP),and do we have to report it?
Q. My husband will be receiving a severance package. How much is he allowed to transfer to his registered retirement savings plan (RRSP), and do we have to report it?
A. Severance payments received upon retirement due to loss office or employment is reported as a retirement allowance the year received. Your husband should check with his human resources department for the possibility of splitting the amounts over several years, to avoid overinflating income, which may result in higher taxes. Taxpayers who received payments and began employment before 1996 may be eligible to deduct an amount from income, if transferred into a pension or RRSP. This rollover is above the normal annual RRSP contribute limit.
The maximum deduction (transfer) is the lesser of:
• The amount received, and;
• $3,500 times the number of years prior to 1989, plus $2,000 each year from 1989 to 1995.
He should work with human resources because they would have his employment history and should be able to calculate the eligible amount that can be transferred.
– Henry Choo Chong, CGA, can be reached at firstname.lastname@example.org and 416-489-7800, ext. 227.