Can I Roll a Retiring Allowance Into an RRSP?
Only the part attributable to service before 1996, and only under a formula that most people no longer qualify for. Two thousand dollars for each year of service before 1996, plus fifteen hundred for each of those years before 1989 without vested pension benefits.
- The answer:: Two thousand dollars per year of service before 1996, plus fifteen hundred per pre-1989 year without vested pension or DPSP benefits.
- The trap:: Assuming the whole severance can be sheltered. Service after 1995 earns no eligible amount at all.
- The recommendation:: Where the eligible portion is small, check your ordinary contribution room, because a large severance in one year is exactly what unused room is for.
Where the AI summary above gets this wrong
"You can transfer your severance package into an RRSP tax-free."
That's surface-true. Here's what it misses:
- Only pre-1996 service qualifies — The eligible portion stopped accruing after 1995, so a career that began later produces no eligible amount whatever its length.
- The transfer does not use contribution room — That is the whole benefit. The eligible portion goes in on top of your normal limit rather than consuming it.
- The rest is ordinary income — Anything beyond the eligible portion is taxed in the year received unless it is sheltered by contribution room you already have.
01 What the eligible portion is
A retiring allowance is a payment made in recognition of long service or for loss of employment. Part of it can be transferred directly to an RRSP without using contribution room, but only the part tied to service before 1996.
The formula is two thousand dollars for each year or part-year of service before 1996, plus fifteen hundred dollars for each year before 1989 in which employer contributions to a pension or deferred profit sharing plan had not vested.
Source: Contributing to an RRSP or PRPP
02 Why most people no longer qualify
The eligible portion stopped accruing after 1995. Someone who began working in 1999 has no eligible amount at all, regardless of how long they stayed or how large the severance is.
For a long-serving employee the amount can still be meaningful, and it is worth asking the employer to confirm the calculation before the payment is made, because the transfer must be made directly rather than reimbursed afterward.
Shows: what a given amount of additional taxable income costs you in tax at your marginal rate, and what you keep. Ignores: provincial surtaxes, credits that phase out with income, and any effect on income-tested benefits.
03 What to do with the rest
Anything above the eligible portion is ordinary employment income in the year received, and a severance paid as a lump sum can push a full year of salary plus the payment into a much higher bracket.
Unused RRSP contribution room is the usual answer, and this is precisely the year to use it, because the deduction offsets income at an unusually high marginal rate. Where the room is short, deferring the deduction to spread it across years is covered in contributing versus deducting.
A direct transfer of the eligible portion has to be arranged with the employer before the payment is issued, because it moves from the employer to the plan without passing through your hands. Receiving the money first and contributing it afterwards uses ordinary room and loses the whole advantage. The employer issues a T4A showing the eligible portion and the remainder separately, and that slip is the only evidence of the calculation if the Agency asks for it years later.
Source: Contributing to an RRSP or PRPP
The pre-1996 rule is a fossil that keeps getting quoted as though it were current. Half the people who ask about it started work in the 2000s, and the honest answer is that the interesting question is not the rollover at all — it is how much unused room they have been sitting on.
FAQ
Can I put my severance into an RRSP?
Only the portion attributable to service before 1996 can be transferred directly without using contribution room. Anything beyond that needs ordinary RRSP room to shelter it.
How is the eligible amount calculated?
Two thousand dollars for each year or part-year of service before 1996, plus fifteen hundred dollars for each year before 1989 in which pension or DPSP contributions had not vested.
What if I started work after 1995?
No eligible amount arises, whatever the length of service. The whole retiring allowance is ordinary income, sheltered only by contribution room you already have.
Sources
Regulator references
- Contributing to an RRSP or PRPP · Canada Revenue Agency · 2025How RRSP deduction limits are set and that unused room carries forward.Last verified: 2026-09-07
- Canadian income tax rates for individuals · Canada Revenue Agency · 2025The federal and provincial rate brackets a withdrawal is taxed against.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.