{"id":538,"date":"2016-06-21T21:03:15","date_gmt":"2016-06-21T21:03:15","guid":{"rendered":"http:\/\/carringtoninc.ca\/?p=538"},"modified":"2016-06-21T21:03:15","modified_gmt":"2016-06-21T21:03:15","slug":"avoid-tax-on-lump-sums-on-retirement-or-termination","status":"publish","type":"post","link":"https:\/\/carringtoninc.ca\/?p=538","title":{"rendered":"Avoid Tax on Lump Sums on Retirement or Termination"},"content":{"rendered":"

Whenever possible, avoid adding a large lump sum to your taxable income in one tax year.\u00a0 This can be especially problematic when a severance package or termination payment on retirement is received.<\/em><\/strong><\/p>\n

A better strategy is to arrange to take the money over two tax years; for example, consider taking part in December and part in January. That will often bring a better tax result over two tax years.<\/p>\n

If your only option is to accept one lump sum, check out your RRSP contribution room and contribute as much of your severance to your RRSP as possible.\u00a0 This will offset taxes owing on the severance in the current tax year. You\u2019ll get to keep more money, earn investment income on a tax-deferred basis and reserve for yourself the opportunity to time RRSP withdrawals in the future to get a better tax result as a family. There may even be an opportunity to split RRSP withdrawals with your spouse in the future.\u00a0 Also, check with a Tax Services Specialist to see if any of the money is eligible for a tax free rollover.<\/p>\n

This is how Edward handled it: when he left his employer late in the tax year, he had already earned $65,000 for the year and received a severance settlement of $100,000.<\/p>\n

Had Edward done nothing, the full $100,000 would have been added to his income, adding tens of thousands to his tax bill! To minimize the income tax consequences, Edward made an RRSP contribution of $100,000 (having not maximized his RRSP contributions in the past, he had sufficient RRSP contribution room). That eliminated the taxes.<\/p>\n

If Edward needs to use those funds over the next several years, he could \u201caverage in\u201d the taxes on the withdrawals by staying under the \u201ctop\u201d of his marginal tax bracket. This strategy would again potentially save Edward thousands of dollars.<\/p>\n

Remember that any lump-sum withdrawal from an RRSP will be subject to withholding taxes; this must be taken into account in cash-flow planning.<\/p>\n

Written by Evelyn Jacks<\/a>\u00a0who is President of\u00a0Knowledge Bureau<\/a>, home of the\u00a0MFA-Retirement and Estate Planning Designation<\/a>.\u00a0 Call 1-866-953-4769 to register.<\/p>\n

\u00a92016 Knowledge Bureau Inc. All Rights Reserved.<\/strong><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Whenever possible, avoid adding a large lump sum to your taxable income in one tax year.\u00a0 This can be especially problematic when a severance package or termination payment on retirement is received. A better strategy is to arrange to take the money over two tax years; for example, consider taking part in December and part …<\/p>\n

Avoid Tax on Lump Sums on Retirement or Termination<\/span> Read More »<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"yoast_head":"\nAvoid Tax on Lump Sums on Retirement or Termination - My CMS<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/carringtoninc.ca\/?p=538\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Avoid Tax on Lump Sums on Retirement or Termination - My CMS\" \/>\n<meta property=\"og:description\" content=\"Whenever possible, avoid adding a large lump sum to your taxable income in one tax year.\u00a0 This can be especially problematic when a severance package or termination payment on retirement is received. 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