Upon resigning from a company, if employer offers a lump sum pension payment of 100k, what are some ways to save on tax on this 100k? Assuming this 100k, is the only income that year, the RRSP room is only around 18k. Is there a way to save on tax on this pension lump sum payment? The situation arises when you leave a company before your retirement age and the only option the company offers is a lump sum pension payment.
asked May 11, 2016 at 17:29
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1Where did this pension payment come from? Is it payments the company has made matching your own pension contributions? Or is it buyout from a defined-benefits pension scheme?– DJClayworthCommented May 11, 2016 at 17:44
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It is a defined benefits plan with optional contributions made by the employee. So I guess it is a buyout.– Victor123Commented May 11, 2016 at 18:46
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1it's normal that transfers out of a pension scheme can be transferred into another pension scheme without penalty. If it was an RRSP you would certainly be allowed to do that. But I've never dealt with a defined benefits scheme. A visit to a tax professional might be worth it.– DJClayworthCommented May 11, 2016 at 18:50
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They don't allow you to leave your benefits with them, deferred until retirement age?– Ganesh Sittampalam ♦Commented May 12, 2016 at 6:03
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1 Answer
I'm american and know little of Canadian law. I assume what I state here to be similar to American law...
I do not believe the "lump sum" of the distribution makes any difference. If you earn 100k in 2016, you earn 100k in 2016...whether you earned it on May 16th, or on every Monday in 2016. Taxes, I'd presume would be the same.
I'd look to see if you can roll the lump sum distribution into some sort of private retirement savings plan. Like an IRA in the U.S.
Also, is the person receiving the lump sum of retirement age?
