Getting at severance money

Zoomer | January 1st, 2006

Q –  I’m retired and have received a severance package of $30,000.  The package was rolled into an RRSP, so I didn’t pay tax.  I have continued in the work force with a different employer.  Next year when tax time rolls around and I want to buy an RRSP to reduce my tax, how can I borrow from my severance package? – W.P.


A – If you rolled the severance payment into an RRSP, the only way you can get access to the money is by withdrawing it from the plan and paying tax on it (unless you are eligible for the Home Buyers’ Plan or Lifelong Learning Plan, which permit tax-free, no interest loans from an RRSP).


It doesn’t make sense to withdraw money from an RRSP and pay tax, only to turn around
and put it back into the plan. In other words, there is no way you can do what you seem to want to do. The government won’t let you have your cake and eat it too. Any new RRSP contribution would have to be made with money earned from your employment. – G.P.