Business

RRSP Season Insights - # 5

Thursday, February 21, 2013   by: BayToday.ca StaffFeature, BayToday.ca
- Kingsdale Capital Markets
- Michael Hutchison

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RRSP Season Insights: Article 5 of 7
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Understanding Retiring Allowances


If you’ve been employed by the same company for many years, you may be entitled to a retiring allowance.

A retiring allowance provides a great opportunity to transfer a taxable lump sum severance directly to your Registered Retirement Savings Plan (RRSP).

Importantly, the retiring allowance does not affect your available contribution room and provides a contribution receipt.

What is a retiring allowance? It is a one-time lump sum payment that an employee receives from an employer when they retire or if there is a loss of employment. The payment includes unused sick time and severance in recognition of the employee’s long standing employment with a company.

Payouts for retiring allowances must be transferred directly to your RRSP and can be invested into any RRSP eligible vehicle.

The eligible portion for the retiring allowance is credited as follows:
$2,000 for each year or part-year of service before 1996 in which you were employed by the employer or a person related to the employer from whom you received the retiring allowance.

You can also transfer an additional $1,500 for each year or part of year of service before 1989 in which you had earned no pension or DPSP benefit from employer contributions that either vested in you at the time of payment or that were previously paid to you.

(Source: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/trnsfrrng/lgbl-eng.html)

The retiring allowance is attractive to individuals who have not had money available previously to contribute to an RRSP, and to those with little available contribution room as they can now move additional funds to their RRSP.
Also, if your severance is greater than your eligible retiring allowance, you can use available contribution room to offset the difference.

Remember, RRSPs are an important part of your retirement plan. A contribution to an RRSP, through a retiring allowance, provides an opportunity for tax-deferred growth until the RRSP is mandated to be converted into a Registered Retirement Income Fund (RRIF).

Next Monday we will discuss RRIFs and Locked in Retirement Accounts (LIRAs).

Michael Hutchison is a Financial Advisor at Kingsdale Capital Markets and instructs part-time at Canadore College. He is a member of the Elks Lodge #25 of North Bay and a member of the board of directors at Community Homeownership Affordability Partnership. He holds a BBA (Hons.) and Chartered Strategic Wealth Professional designation.

Kingsdale Capital Markets


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