Lump Sum Investment

Investment    

1.)    Lump sum money! usually severance pay.

There is a very important responsibility with lump some payments, and they can have drastic tax responsibilities or advantages.

If you receive the money in you hand, it can have devastating consequences.

 It all becomes taxable as primary income. 

That means if you worked during the year and had and income of $40,000 add the lumps sum of say $80,000, and you now have and income of $140,000.

 If you have been making your RRRSP contributions each year, you can only contribute 18% of your previous year’s income. So you can get an RRSP of $7500 for a tax refund of approximately $3000, leaving you with a gigantic $132,5000 to be taxed.

Now in scenario two, you do not get the cheque, but your employer transfers thee $80,000

Into an RRSP in your behalf You get a tax break of $32,000 so you have $80,000 in your RRSP and you add the amount of tax saving,  you have $113,000 in you RRSP. 

If you have sufficient income to buy your allowable RRSP for that year, you could add the other $3000 to it and your invested retirement is now working for you at a huge $116,000 compounding.

And this makes lifestyle changes

So let’s pretend you are 55. So your RRSP at least should bring in 5.5%

$116,000.00
*5.50%
add interest  $6,380.00
$122,380.00
add interest *5.50%
$6,730.90
$129,110.90
So In 3 years you have increased your portfolio by  $12, 220.90