So today I had an excellent presentation about the financial aspects of my severance from my employer, by a C.A. who is also a Financial Planner. He brought up several fascinating points, one that I had heard about but didn’t understand and another that I wasn’t even aware of (and caused me to write down many more questions for my one-on-one session with him shortly).
RRSP Severance Rollover
Up until 1996 the rules for moving severance packages into RRSPs was pretty wide open, but then in 1996 the rules changed and you were not allowed to simply plow your severance directly into your RRSP (if you didn’t have room to put the severance allowance in your RRSP). The accommodation for folks like me that were still employed (and have been) by the same employer before 1996 (and haven’t received a severance package), I get a $2000 per year RRSP “bump up” for every year I worked for my employer before 1996 (and working in the year, could entail only 1 days work, too bad I didn’t work there as a Co-Op student).
For me this means that since I was employed from 1988 to 2008, I get 8 years counting in there or an RRSP bump up (for this one time) of $16,000 which I can put some of my severance package in (which is a good thing). Since it is so late in the year, any dollar I shelter most likely saves me 46 cents of taxes I don’t have to pay on this year’s CRA tax forms (sorry Mr. Harper).
Severance Income is the Worst Kind of Income
Well, if there is such a thing as bad income, a severance package is that, because you get a T-4A for this income, but this income will not increase your RRSP room for the year, and it is not really counted as income per say (other than the fact that it gets TAXed like it is income). What I am trying to say is that severance is not an EARNED Income, thus you don’t pay CPP or EI premiums against it, but you don’t get RRSP room for it either. I didn’t know that one either.
Another Idea the Lifelong Learning Program
Instead of simply cashing in RRSPs to pay for going back to school, the government has set up the Lifelong Learning Plan (LLP) where you can withdraw $10,000 in a year and $20,000 total over 4 years to help pay for your schooling. There are rules for you to repay your RRSP the amount you borrowed to pay for your education, but I thought this would be a really good idea (for me or my wife). I don’t think this is something I will use now, but it is an interesting concept.
Best Joke to Say Around Former High-Tech Workers
The presenter had a great comment for the section we skimmed over, “So this should be a short section, it’s about what to do if you make profits on your stock options during your severance period…”, everyone in the room burst out laughing, as did the instructor. If you aren’t in High Tech, you might not get it, but if you saw the Simpsons episode where it showed a high-tech company giving out Stock Options from a toilet paper roller, you might get the joke.
I learned a lot today.