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My part time job of 30 years is closing down in January. I will be receiving a small severence package. I was going to roll it directly into an RRSP, but after doing some math I am leaning towards throwing it all onto our cottage mortgage. The mortgage is new, less than one year. We are otherwise debt free. Any opinions??
one advantage to putting it into an RRSP even temporarily is to roll the income into another tax year-if you do not have other income or less income in that year you might pay a lower tax rate. So if you get it in 2014 put in an RRSP and take it out in 2015 or if you get it in 2015 put in RRSP and take out in 2016. You would have to do some math, perhaps entering your expected income each year in an online tax program, to see if you would save some tax money. If you decide to withdraw it you can still pay down your mortgage afterwards. I got a severance a few years ago and I was allowed a direct transfer to an RRSP of 2,000 per year for 9 years for certain tax years that I had worked. You may be entitled to this as well as whatever unused room you have in your RRSP. Only you can decide how much income you will have in retirement and whether you prefer to have the money then or now to pay down your mortgage. Good luck!
^^^ Good idea.
Consider how much tax you'll be paying on the severance first - it might push you into a higher tax bracket depending on the amount.
I would say if you can still afford to own your home by paying a mortgage on it without any issues, i'd def.. go the RRSP route.
In the future you may choose to downsize to a smaller home, you can't choose not to retire. Well you can, sadly not a happy outcome.
I received some severance last year. It pushed my income up quite a lot, and so I opted to put the full amount into an RRSP to reduce my annual income and defer tax on that portion. When the tax refund came in, I put the full amount as a lump sum on our mortgage. So I was able to benefit from both an RRSP contribution and extra money towards the mortgage.
This was a good option for me because the severance was making my income for last year very high, and my income in retirement will most certainly be lower, so hopefully the tax that I will pay on it at that point will be lower. I am 15 to 20 years away from retirement. There is time for the money in the RRSP to grow and hopefully work for me.
Here is a writeup I did on the best ways to maximize a severance package:
http://www.ourbigfatwallet.com/maxim...rance-package/
after even more math (my brain is getting a workout!) I am thinking of taking the cash and buying rrsp for hubby then using refund towards mortgage. Hubby is in higher tax bracket then me. The severance will be paid out in 2015. My income will be relatively low as I will only be working contract work at CRA. I am currently working CRA and grocery store. the severance will be subject to 20% tax if i take the cash
Wifey...I have to agree with Super807. I think we are all coming from the same angle. I'm with CBSA & when they cashed us out on our severance, I put it into RSP because putting it into my income would have pushed me into a higher tax bracket. I do like the idea of my refund (if that happens), going onto my mortgage. That seems to be a great consideration at this point. Our income level now will certainly be higher than in retirement.
On the other hand if you are near retirement it doesn't make sense to buy more RRSP's........paying off debt would be more beneficial. whatever you do, DON'T cash it out into your bank account if you are going to turn around & buy back into an RRSP for your husband. YIKES! Taxed 20%! Buy RRSP then buy more in husbands name with refund :)
If you take it in cash, you'll be paying tax on it, and it will be taken at the source. So if your severance is $5,000, you'll be getting $4,100 (or whatever amount depending on your tax bracket). Better to have it rolled into an RRSP and have the extra $900 working for you in an investment. Once that's done, look into the ramifications of transferring the money to your husband.Quote:
Originally Posted by wifey
So I went with all of your advice and transferred it all into an RRSP...received the confirmation today that it was deposited. With this cold weather I'm kind off wishing I had kept some for a vacation!!