Retiring allowance rollover

Zoomer | July 1st, 1998

At retirement or termination of employment, employees are typically offered some sort of severance payment. If your severance is paid out as a “retiring allowance” it will receive special tax treatment. That is, subject to certain limits it will be eligible for tax-free rollover to your RRSP (not to a spousal RRSP). This special rollover does not erode your “regular” RRSP contribution room. You should also note that Alternative Minimum Tax (AMT) could be triggered if the amount of the retiring allowance you transfer to your RRSP is quite substantial.

Maximum Retiring Allowance Eligible for Tax-Free Rollover to an RRSP



  • No rollover allowed for 1996 and future service years


  • $2,000 per calendar year of employment up to & including 1995 (part years count as full years); plus


  • an additional $1,500 per calendar year of employment up to and including 1988, when employer contributions to an RPP or DPSP did not “vest” in the employee.

    • RRSP Contribution Guideline:
    If any retiring allowance was received in 1997, make sure to contribute eligible amount by March 2, 1998 deadline (there is no carryforward provision r a retiring allowance like there is for regular RRSP contribution room). In addition, make sure to separately identify and designate this amount as an eligible retiring allowance contribution.

    This information is excerpted from Merrill Lynch’s Special Reports “Retirement Savings Guide”, “Strategies for Dealing With an Early Retirement Package” and “RRSP Contribution Checklist”. For a complete copy of these reports, please contact your Merrill Lynch Financial Advisor.

    The information contained herein was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Merrill Lynch Canada Inc. is not a tax advisor and we recommend that clients seek independent advice on tax related matters.


    Financial Tips courtesy of Merrill Lynch Canada Inc.