How much of my severance package can I put in my RRSP?

Gena Katz, a chartered accountant and principal with Ernst and Young, has the answer.

Gena Katz 28 August, 2003 | 1:00PM
Dear Expert:

I am going to receive a severance package of some $60,000. Am I allowed to put the full amount into a RRSP account to reduce my personal income tax for the year or is it still subjected to the maximum $13,500 rule?

Expert answer:

The amount of severance or termination payment that can be transferred/contributed to an RRSP is above and beyond your regular annual contribution limits based on earned income and pension adjustments. The maximum that can be transferred to your RRSP is as follows:
  • $2,000 for each full year prior to 1996 during which you were employed by the employer paying the retiring allowance; plus

  • $1,500 for each full year prior to 1989 for which employer contributions to an Registered Pension Plan or Deferred Profit-Sharing Plan have not vested.

If the permitted termination amount is transferred directly to your RRSP, there will be no withholding tax. If your severance exceeds the amount eligible for transfer to your RRSP, the excess is taxable to you in the year received.

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Gena Katz

Gena Katz