# Most tax efficient way for my mother to gift her severance



## jfall (Dec 18, 2015)

Asking on behalf of my mother. She is planning on retiring this year likely in November 2016. She is currently 61. She is a gov employee (nurse) and her severance pay is estimated to be just shy of 40k

My mother doesn't want/need this money for her retirement and instead wants to gift myself and two other siblings the money. We are trying to figure out the best way to go about doing that in terms of taxes etc. 

My understanding is that if she takes the full severance in pay it would be taxed at a very high rate almost 50% (correct me if I'm wrong). She can roll the full pay in to an RRSP and defer taxes. 

Rolling in to an RRSP initially sounds like the best option but then after that how should it be handled? Should she start withdrawing smaller sums each year after retired and in a lower tax bracket? Say for example each year take out 10k and give it to one child then 10k the next year to another child as a gift. 

Would there be any benefit for her to hold the money in her RRSP until death? from what I've read upon death the only option is to transfer to a spouse or it's withdrawn under the beneficiary and they take the tax hit. 

It seems to me that the best possible option is for her to roll in to RRSP and withdraw small amounts over the course of a couple of years. Is that a correct assumption?


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## AltaRed (Jun 8, 2009)

jfall said:


> It seems to me that the best possible option is for her to roll in to RRSP and withdraw small amounts over the course of a couple of years. Is that a correct assumption?


Probably, especially since she is likely to be in a lower marginal tax bracket starting in 2017. If she doesn't roll it into her RRSP, it will be considered regular income and added to her current income....whatever bracket that happens to be.

Check the following to see what can be transferred directly to an RRSP rather than the employer first withholding tax and paying your mother the residual and then your mother transferring the residual into an RRSP and then getting a tax refund back the following year for the contribution when she files her tax return.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/130/rtrng-eng.html 

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4/spcl/trnsfr-eng.html


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## OhGreatGuru (May 24, 2009)

Whether the severance would be taxed at 50% depends on her normal income plus the amount of severance.

Many people in this situation defer retirement to January (if it is an option), so the severance is received in a year with lower pension income.

She needs to determine how much ordinary RRSP room she has:
She needs to determine how much, if any, of the severance is eligible as additional RRSP room under the rules for "Retiring Allowances." Her Pay & Benefits should provide her with this information.


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## 0xCC (Jan 5, 2012)

The other consideration is what her income will be once retired. Since she is a nurse it seems like she will have a pension. Will she also take CPP right away or will she wait until she is 65? Does the pension have a bridge benefit that will basically make her pre-CPP and post-CPP income the same?

The answers to those questions will have an impact on how much tax she will have to pay on the RRSP withdrawal.

Also having a province of residence would help to estimate tax rates.


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