How much rrsp should i cash in? | Page 3 | RRSPs and RRIFs | Discussion forum

The RRSP may not be around much longer because the NDP and some liberal types think that only "rich" people have the money to sock away in an RRSP.

Wait for it, the "wealth" tax is also on its way.

Alexandre said

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Here is true story, but I haven't saved link to where I read it from: elderly woman wanted to withdraw from her RRSP/RRIF, perhaps to close it, and the amount was about $35,000-$45,000. She asked community volunteer financial adviser if there will be penalties if she takes all money at once. She was told there will be none.
Not only she was hit with 30% withholding tax, but she lost her GIS for the whole next year, which was over $10,000.

Assuming she got most of RRSP withholding tax back in next tax return, she still lost over 25% of her RRSP money from unwise recommendation.

This story also shows that there are, indeed, people with RRSP savings who do end on GIS. Maybe they are not active on this forum, but they do exist.

GIS clawback is actually 50%. If she had spread the RRSP withdrawals over multiple years, she would have had 50% of the RRSP clawed back out of her GIS payments instead of 25%.

RRSP's and RRIF's are toxic to people who will qualify for GIS. There will be the 50% GIS clawback plus the regular income taxes on the withdrawals.

The tax withholding is not important. It is a prepayment towards the regular income taxes on the withdrawal like the tax withholdings on a paycheque. Any excess taxes withheld will be refunded when one files the tax return next year.

Alexandre said
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So, $2,000 in taxable income annually. How much that person can withdraw from RRSP/RRIF annually to NOT trigger GIS clawback?

I would guess $0 unfortunately.

According to TaxTips.ca: Guaranteed Income Supplement, only

• OAS,
• GIS, and
• up to $5,000 of employment/self-employment income (net of CPP/QPP/EI contributions)

are excluded from the GIS clawback calculation.

The taxable withdrawals from an RRSP or RRIF don't fall into any of those three categories.

WINNIE and co: I've done two RRSP withdrawals in one year to limit withholding in the past a time or two. Never a problem. Of course if one has more than one finiancial institution holding RRSP dollars one can make withdrawals from each and neither FI will see both. 🙂

Withholding is one of the main reasons why one should make those withdrawals as close to the end of the year as possible. I would avoid leaving it past December 1 to make the request, though, as many FIs are really slow to process them. Tangerine (who I no longer use) once took three weeks, missing the deadline, but the nice folks at Peoples' Trust honored the transfer as of the end of the year and backdated it.

Tangerine refused to direct-debit the amount and insisted on MAILING a request to Toronto, then MAILING the forms to Peoples' Trust.

Bud: You should get a T4RSP, if I recall the slip name correctly.

Bill: I certainly did plan for my latter-years benefits, and drained my RRSPs over low-income years just enough to stay in the zero-tax bracket. It's why I also applied for pensions at the earliest possible age. I have about $2500 in RRSP left to strategize with, and I DO collect OAS and GIS.

And I never begrudged those who came before me and got benefits I expected (with some doubts) to see myself in time.

I think this year is the first time I'll be able to use medical deductions. I plan to do a lot of dental work before the end of the year to maximize this, and thus my benefits next year.

A reminder: medical-expense deductions can be taken for any 12-month period ENDING in the tax year they're claimed. Shift that window, and you expenditures, to your advantage.

Loonie: The RRSP was conceived as a benefit to middle/high-income taxpayers, who expected to see lower tax brackets after retirement. The benefits to the very rich were limited by the deposit limits. Those who bought in in those early days DID benefit, because (mostly conservative) governments HAVE reduced all tax rates over the years. (Though they have also added some new high-end brackets... reading the future is never easy!)

COIN: The RRSP can go to heckamundo in today's world. The TFSA is a much better plan for most of us.

Norman1: Witholding tax is very important to people carrying high-interest debt! (Not me!) A few months without a few grand to pay off your credit cards could cost thousands! And some payday loan and high-risk loan companies charge 50-60% APR! Don't force yourself to delay those payments!

Norman1, I can't figure out how the GIS clawback comparison you cite works. (But then, it's 9am and I'm half-asleep!) Can you explain further?
RetirEd

RetirEd said
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Norman1: Witholding tax is very important to people carrying high-interest debt! (Not me!) A few months without a few grand to pay off your credit cards could cost thousands! And some payday loan and high-risk loan companies charge 50-60% APR! Don't force yourself to delay those payments!

Norman1, I can't figure out how the GIS clawback comparison you cite works. (But then, it's 9am and I'm half-asleep!) Can you explain further?

The GIS clawback is 50% and doesn't carry forward to future years.

If one withdrew $50,000 from a RRIF in a year, then the GIS clawback is $25,000. But, if one is only receiving $10,000/year for GIS, then one will lose the entire $10,000 GIS for the year. That will be it.

The remaining $25,000 - $10,000 = $15,000 of GIS clawback evaporates.

If one had instead withdrawn $10,000/year for 5 years, then $5,000 of the $10,000 GIS each year would have been clawed back for 5 years. A total of $25,000 would be clawed back instead.

Loonie said
It's very unwise to plan your life in a way that is dependent on today's policies. People thought they would be retiring at 65; now i'ts 67. People contributed to CPP, having been told the Survivor Pension would be 60% but it's now virtually impossible to get 60%. Originally, people thought income tax was a temporary measure. And so on.  

The only solution is to be a teacher and collect an indexed defined pension starting at age 55 for life.

Bill: True. It wasn't until TFSAs were on the scene that we began to see warnings about losing means-tested benefits. I was young and my tax rates were low when I bought RRSPs, so I saved almost nothing in taxes. As I got older (over 50) income got harder to find, and I realized the dangers. BC no longer has Medicare premiums to worry about either now, but we do have SAFER benefits.

Norman1: Thanks! Now I understand! (and the sun is up).

Loonie: If assets were taxed as well as income, a great many who aren't really wealthy would be pushed down to the poverty level. I'd never be able to afford a care home in my later years (not that far off!) in that case and would be homeless or worse. And how would we treat home-owners, who are the loudest anti-tax screamers of all despite their incredibly favoured real-estate investments?

By the way, didn't the current government move the retirement age back down to 65, not 67? Or are you referring to some other cut-off than government pensions?

COIN: all pensions should be defines-benefit. Anything else is just a casino-investment scam.

RetirEd

As far as I know, the retirement age was not reduced to 65. I might have missed something as it doesn't affect us.

Nobody is going to be pushed into poverty because of a wealth tax. All the talk about wealth taxes has been focused on the very wealthy as Norman said.

I agree that a wealth tax would be a nightmare to administer. That's why I have difficulty seeing it ever happening and am surprised that it's been floated.
They've begun keeping track of our property, as you have to declare when you sell now. Perhaps they could target those who own more than one property for a start? But that would be strenuously opposed by all the ridings where recreational properties abound, and pretty soon they would develop different forms of ownership in order to evade it. It would keep lots of lawyers, accountants and gov't employees very busy.

Bill said
Check out what's happened to wealth taxes in western Europe, mostly all gone for various reasons, including the above-mentioned time and effort to administer (e.g. tax auditors trying to determine accuracy of appraisals, every year, of all the art, yachts, myriad of assets owned by wealthy)  

I think even people under the threshold ($10mm, $20mm, whatever) will still have file a wealth tax return to prove they are under the threshold. Last thing we need is another tax return.

Here's a simple example, one of my neighbours arrived in Canada decades ago with nothing. He worked hard (often at 2 jobs) and now owns 4 houses in Toronto. I would hate to think his reward for all that hard work is another tax.