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Severance Pay

My husband and I have 2 months left until our discharge (9mos). My company has just closed, leaving me without a job and paying me severance at 40 hrs per week for 20 weeks. Although I will get a job with the new employer, my wages and hours go done dramatically. EI will deduct any severance I receive dollar for dollar.
I was told I could put my entire severance into my RRSP’s until out of Bankruptcy. Is this legal? I am a seasonal worker, so monies like this, would normally be saved to pay bills over the winter as that is when EI will deduct this.

Posted from: British Columbia

One Response to “Severance Pay”

A licensed trustee said...

I am not sure what you mean by “legal” – if your ex employer is offering you the option of putting all of the money into an RRSP then you may choose to do so. It will have no affect on how much surplus income you will be responsible to pay as your trustee will simply “add back” whatever you put into an RRSP before they determine how much surplus you owe.

Most trustees will take your severance package, divide it by the number of weeks that you have been paid for and then add the appropriate amount to each of the next few months until the severance period has been used up. In that way you are not penalized for receiving a large cheque in month one and then no income for the next 4 months (or until you find a new job).

Call your trustee before you make any decisions – if you roll all of the money into an RRSP and then find out you owe a lot of surplus you’ll either have to cash out the RRSP or go to Court and ask for more time to pay what you owe…