# TAXES AND RETIREMENT



## Johnny Cash (Apr 21, 2012)

I am retiring in September this year after 26 years of pensionable service. The company will give me one month retirement bonus and they asked me if I would like to use that amount towards my RRSP. At present, I don't have any room in my RRSP. Does my RRSP room increase after I retire? What tax consequences should I plan for when I retire? Thanks, Johnny

I should add that I am 60 years old. I may also start working part time but I am not sure yet.


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## kcowan (Jul 1, 2010)

They are just giving you cash. You can avoid having tax deducted by depositing directly to an RRSP. But they will just deduct tax.


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## RBull (Jan 20, 2013)

Your RRSP room is earned @ 18% on your previous year employment income-max up to $26010 for 2017. You may have RRSP room available based on earnings Jan 1 - Sept. earnings. Check to see if the bonus is eligible as a "retiring allowance" some of which may be eligible to go directly to your RRSP regardless of room. (rules changed in 1996). 

Your room does not increase after you retire unless you continue to work P/T like you mentioned. However it may not be beneficial to contribute unless the difference between income while working P/T is much more than when you fully retire. Maxing your TFSA would probably make more sense if you weren't already planning this. 

Your question of retirement tax consequences is pretty broad to answer without providing details of your financial situation. You will pay taxes on your income- pension, unregistered investments, capital gains as applicable, RRSP withdrawal income as applicable etc. and tax on your CPP and OAS after you have applied and receive them. If you are married and have a registered pension you should be eligible to split this income with a spouse which could be advantageous in reducing tax. 

I'm sure others may chime in with more considerations. G/L with your retirement in Sept.


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## OhGreatGuru (May 24, 2009)

If this qualifies as a "Retiring Allowance", part or all of it may be eligible for "extra" RRSP room. Ask your Pay & Benefits to clarify. Since you have service from before 1996 it may qualify, and if it's only a month's pay, all of it may. The T4 issued by your company will show the amount that qualifies as a retiring allowance in a separate box. See http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4/spcl/trnsfr-eng.html and the related CRA guide on RRSPs.


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## Johnny Cash (Apr 21, 2012)

OhGreatGuru: You mean that I can contribute $12,000 (1991-1996) additional amount to RRSP. The $12,000 amount will include one month of retirement bonus (it is not retiring allowance). The CRA guidelines also make similar statements that this amount should be indicated in my T4 using code 66 for 2017.


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## agent99 (Sep 11, 2013)

Johnny Cash said:


> OhGreatGuru: You mean that I can contribute $12,000 (1991-1996) additional amount to RRSP. The $12,000 amount will include one month of retiring allowance. The CRA guidelines also make similar statements that this amount should be indicated in my T4 using code 66 for 2017.


The rules may have changed over the years, but it is possible to transfer all or part of a lump sum retiring allowance to your RRSP. You don't even have to be retiring. It could also be severance pay when laid off. I haven't read all of this, but this document seems to cover it: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s2/f1/s2-f1-c2-eng.html. 

As suggested, ask your company personnel/accounting people about it. You will have to pay tax when you withdraw from RRSP or eventually RRIF, but this can be spread out over many years. If you take cash, your taxable income (and therefore taxes) may be very high in your retirement year. It is sometimes possible to arrange to get 1/2 in one tax year and 1/2 in the next one and partially avoid higher taxes.


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## OhGreatGuru (May 24, 2009)

Johnny Cash said:


> OhGreatGuru: You mean that I can contribute $12,000 (1991-1996) additional amount to RRSP. The $12,000 amount will include one month of retirement bonus (it is not retiring allowance)....


No. $2K per year for those years is the maximum amount of Retiring Allowance that may be transferred to an RRSP (over and above your current contribution room). If the Retiring Allowance is less, you don't get to claim $2000/yr. contribution room to be used up from other income sources. Talk to your Pay & Benefits. If they have offered to pay it your RRSP, they may mean they can report it on your T4 as a retiring allowance.


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## Eclectic12 (Oct 20, 2010)

RBull said:


> Your RRSP room is earned @ 18% on your previous year employment income-max up to $26010 for 2017.


I suspect this formula is misleading.

The OP says "after 26 years of pensionable service" which says there is a pension at play. This means that when the RRSP room is added, the formula will be 18% x earned income - pension adjustment (PA). 

Should the pension in question be a DC pension, it likely is not too bad as the PA will be relatively small. 

Should the pension be a DB pension, the PA will be much larger. To illustrate, my friend's earned income using the "18% x earned income" gives $18.5K but his DB pension PA of $14.5K cuts it down to $4K.

Assuming income is reasonably the same for 2015, the amount of RRSP contribution room added on the NOA may give a reasonable estimate.

While the OP says they have no RRSP contribution room, the 2016 tax return just filed, the NOA for this return should be granting new RRSP contribution room of $600 or more.




RBull said:


> You may have RRSP room available based on earnings Jan 1 - Sept. earnings.


The Jan to Sept is 2017 so I don't believe this income will produce additional RRSP contribution room until 2018. Unless the OP has been really aggressive, I suspect the 2016 RRSP contribution room is close to being granted.




RBull said:


> Check to see if the bonus is eligible as a "retiring allowance" some of which may be eligible to go directly to your RRSP regardless of room. (rules changed in 1996).


Good point.


Cheers


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## RBull (Jan 20, 2013)

Eclectic12 said:


> I suspect this formula is misleading.
> 
> The OP says "after 26 years of pensionable service" which says there is a pension at play. This means that when the RRSP room is added, the formula will be 18% x earned income - pension adjustment (PA).
> 
> ...


Possibly you missed the reason I responded this way. The question was asked if RRSP room increased "in retirement". My response was related to this in retirement - ie no pension contributions to reduce RRSP room. The OP must be aware of how their pension contributions reduce their RRSP limit since it is maxed out. 

I've had benefit of DC pension and a spouse with DB pension, both with retiring allowances so have been through all of this ourselves. 



> The Jan to Sept is 2017 so I don't believe this income will produce additional RRSP contribution room until 2018. Unless the OP has been really aggressive, I suspect the 2016 RRSP contribution room is close to being granted.


 Agree. I didn't suggest it could be claimed for 2017 and actually referenced "previous years employment". 



> Good point.


Thanks. 

Cheers[/QUOTE]

Cheers.


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## Eclectic12 (Oct 20, 2010)

RBull said:


> Possibly you missed the reason I responded this way. The question was asked if RRSP room increased "in retirement". My response was related to this in retirement - ie no pension contributions to reduce RRSP room ...


Why would there be "no pension contributions" when the post was about "18% on your *previous year employment income*"?
Or are you thinking the OP has hit some threshold in 2017 so that the 2017 pension contributions stopped before the 2017 employment income stopped? 


*Edit:*
AFAICT, for the PA to be zero (aka irrelevant) in the 2017 number based calculation in early 2018 to grant RRSP contribution room, the pension contributions in 2017 would have to be zero. Or am I missing something?




RBull said:


> ... The OP must be aware of how their pension contributions reduce their RRSP limit since it is maxed out.


 ... not sure this is a good assumption to make. Some look at their NOA to get the RRSP contribution room number where they have no idea of what type of pension they are in, never mind how the type of pension affects how RRSP contribution is granted.

In a similar fashion, many I talk to have no idea that their income from interest, dividends and capital gains is not "earned income" so that no RRSP contribution room will be granted.




RBull said:


> ... I've had benefit of DC pension and a spouse with DB pension, both with retiring allowances so have been through all of this ourselves.


I am thinking the retiring allowance is going to be the most effective, a DC pension that reduces the RRSP contribution room less as the next best and the DC pension as last.


Cheers


*PS*

The timing may be the disconnect. The retirement bonus has me thinking of 2017 and 2018, where the pension contributions look like they will be at play.

When the 2019 calculation is run using 2018 income, pension contributions will have disappeared so that earned income is likely the main factor (barring the less common factors that reduce the room granted).


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