Let’s talk about retiring allowances.
Some of you are being offered $40,000 to retire.
How can you avoid paying tax on that income?
There are 2 answers:
If you have sufficient RRSP contribution room, just stuff the whole $40,000 in there.
But you say: “I want to spend that money on a new [fill in the blank]”
Well, that’s not a problem. You can spend it.
But if you manage the tax hit on this, you can spend more.
How do you manage the tax hit? Just spread the withdrawal out over 2 or 3 years.
Withdraw next year when your income is low and you’re in a lower tax bracket.
Questions? Give us a call or flip us an email.
Further to that, the tax department, CRA, allow you to tax shelter:
$2,000 per year of service with the employer before 1996.
So, if you started work in 1992, you’re allowed 1992, 1993, 1994 & 1995 @ $2,000 each year = $8,000.
You can put that $8,000 into an RRSP to avoid tax even if you have zero room available.
On top of that, you can put in $1,500 per year prior to 1989 but only if you were not a member of a pension plan.
Read this note from AIM Trimark for details.
There you go.
What’s the goal of all this? To avoid paying tax up front on the $40,000.
Yes, you’ll pay tax when you withdraw but with some tax planning you’ll pay less tax so have more to spend.
Connect with us for tax planning and retirement planning.
We’re specialists in copycat pensions and commuted values.
BRUCE YOUNGBLUD, CFP, CIM
President of Pension Solutions Canada