 |
 |
Latest Question:
Wednesday, March 06, 2002.
Tim Cestnick
|
Q:
Ron writes:
I'm planning to retire in one year. My employer will give me a retirement gratuity of approx. $35,000. I have not contributed to RRSPs for some years and so have room built up to contribute. Other than this form of sheltering, what other ways can I shelter this money from taxation? And was it a good idea to not shelter using RRSPs and build up the room for the lump sum payment?
A: Thanks for the question Ron.
Putting your "gratuity" into your RRSP is likely your best bet to shelter the tax on that amount. If that amount is considered to be a retiring allowance, the amount can be deposited into your RRSP on a tax-deferred basis without using up any of your RRSP contribution room. Most payments made to employees who leave an employer are structured as retiring allowances.
There is a limit, however, as to how much can be rolled tax-deferred to your RRSP under these rules. That limit is $2,000 per year of service for years up to and including 1995. In addition, $1,500 for each year prior to 1989 in which you did not have any vested contributions to a company pension plan can also be rolled tax-free to your RRSP.
Once you've reached this limit, you can then contribute some of that retiring allowance to your RRSP and shelter it from tax using your RRSP contribution room.
Your second question is whether or not you should have accumulated that RRSP contribution room in the first place. It all depends on whether or not you're entitled to a tax-deferred rollover to your RRSP without using up that contribution room. It may be that you don't need to use that room to put all or a part of your "gratuity" into your RRSP.
Don't worry about the past, however. If that RRSP room hasn't been used up, it still can be if that is the best approach for you.
view archive of past Q & A
Tim Cestnick, is Managing Director, Tax Smart Services, AIC Ltd. Tim is author of the best-sellers Winning The Tax Game and Winning The Estate Planning Game. He is author of Winning The Education Savings Game, co-author of Death & Taxes, Your Family's Money and editor of the best-seller Taxes for Canadians for Dummies. Tim is also a tax commentator for television's CBC Newsworld, and tax columnist for The Globe & Mail's Report on Business.
|
RRSP Home
Advertisement