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posted Oct 30, 2019 7:02:44 PM

What's the difference in putting some severance pay into rrsp when payed out or taking cash and then buying rrsp at a later date in the same year.

Im getting a severance package, I have the option of putting some of it into rrsp.  I want all the money now and buy rrsp at a later date, whats the difference if any. thank you

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Level 11
Oct 30, 2019 7:02:46 PM

The main difference is how it's taxed but there are also RRSP contribution limits to consider. 

If your severance payout is transferred directly into an RRSP, it's considered to be a "transfer" meaning you'd add the income and an offsetting deduction in the RRSP section. No tax would be withheld at the source. If you choose to take the payout and then purchase RRSPs at a later date, there's a good chance there will be tax deducted at the source.

If you choose to transfer the severance directly, the "eligible" portion of the transfer will have no effect on your RRSP contribution room. Here's a link for more information: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/transfer...