I just received a lump sum severance payment with no tax deducted; can I put it into my TFSA to avoid taxes?
We are not able to provide advice related to your question, however, we do try to provide general information to help. The “tax-free” portion of a tax-free savings account (TFSA) refers to your income growing tax fee – whether you are earning interest, dividends or capital gains – even when withdrawn. Contributions to a TFSA are made with after-tax dollars, and making a contribution to the plan with the lump-sum you received would not prevent you from paying taxes on the sum. The Canada Revenue Agency requires you to pay income taxes on severance pay. As tax rules are enforced by the Canada Revenue Agency, if you have questions we suggest you, contact them. If you do decide to contribute to your TFSA, make sure you are within your contribution limits. You can find out how much room you have available from the Canada Revenue Agency (CRA).
Another option may be to contribute to a registered retirement savings plan (RRSP), a tax-deferred savings plan, if you have contribution room available. With an RRSP, contributions are tax-deductible and your savings grow tax-free within the plan. Withdrawals from the plan are fully taxable as income in the year you withdraw them.
A registered financial advisor or tax professional can help you determine what will work best for your own financial needs and personal situation. Learn more about TFSAs and RRSPs.