Can you reduce the amount of tax withheld on RRSP withdrawals? | Income tax filing | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Feed Topic RSS sp_TopicIcon
Can you reduce the amount of tax withheld on RRSP withdrawals?
April 3, 2020
6:16 pm
GICinvestor
Member
Members
Forum Posts: 670
Member Since:
April 26, 2019
sp_UserOfflineSmall Offline

See article.

https://www.moneysense.ca/columns/ask-moneysense/withholding-tax-on-rrsp-withdrawals/

Could MoneySense not have given some actual advice that most already know and practice, including investment advisors?

April 3, 2020
6:44 pm
Norman1
Member
Members
Forum Posts: 4397
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Also, the 20% tax withheld on the RRSP withdrawal doesn't seem to be that far off of the actual income tax.

Person had withdrawn $12,000 from RRSP. Including that withdrawal, income for the year is $30,500.

Person's provincial tax bracket is 5.06%. Federal tax bracket is 15%. Combined is 5.06% + 15% = 20.06%.

April 3, 2020
6:46 pm
Loonie
Member
Members
Forum Posts: 7498
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I got bored with the answer but i don't think he ever answered the actual question.
It's not a very helpful answer and leaves out a lot of things this person needs to consider.

April 3, 2020
7:06 pm
GICinvestor
Member
Members
Forum Posts: 670
Member Since:
April 26, 2019
sp_UserOfflineSmall Offline

I have noticed a lot of articles on Apple News do the same. Catchy title but yada yada yada with no conclusion as per title.

So for $12,000 is there a tax savings? Yes, sort of, take 3 withdrawals; $5000, $5000, and $2000. For a 10% hold back.

Another way to achieve is to have RRSP RRIF funds in three different FIs and/or begin to withdraw before 71 and reinvest into TFSA.

That may be short term but you can invest the 10% saved in a HISA until tax time.

I am retired on company pension, OAS and CPP. I lost 30% of pension but continued to set aside, myself, the taxes withheld from my pension. As well I set aside 20% from any interest earned that comes into my HISA. I always have too much set aside to pay taxes due.

Edit: No taxes taken from CPP or OAS. No taxes taken from wife's pension, CPP or OAS. Taxes taken from RRIF withdrawals. And income splitting reallllllly helps.

April 3, 2020
9:30 pm
Loonie
Member
Members
Forum Posts: 7498
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

GICI. are you managing to avoid quarterly CRA payments using this strategy? We find that we have to either have deductions at source or quarterly payments, one or the other.

Yes, you can divide up the withdrawals in order to have lower rate of deductions, but it depends on how your FI views it. The key is whether they interpret that you intended to do this or not. If you didn't intend, then you're OK; it was an afterthought. But if they think it's a strategy, then you can get dinged . I've seen both.

An RIF might help this guy, as it would lower the mandatory withdrawal rate, but if he really wants to take out 12K and he has an RIF of 200K, he is going to want to take out 6% even if his mandatory rate is only 4%. And if what he wants is 12,000 cash, he will need to withdraw even more.

The annuity could be even worse as its annual payout is set in stone.

Sadly, with an income this low, he probably can't afford a financial planner (although some might say he can't afford not to have one). MoneySense could have and should have done a better job so that he wouldn't need one. It's not that difficult. There are probably lots of people who find themselves in a similar position.

April 3, 2020
10:54 pm
Norman1
Member
Members
Forum Posts: 4397
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

According to Question #7 of CRA: Frequently asked questions (RRSPs/RRIFs), CRA expects the tax withholding rate to be based on each individual RRSP or RRIF withdrawal, unless the withdrawals are part of a single request or the annuitant appears to be making separate requests to avoid a higher withholding rate:


In a situation where an annuitant receives monthly [RRIF] instalment payments and submits a request for an additional amount during the year, the CRA views this as a separate request and only requires withholding on the excess portion of that specific payment regardless of the amount of the ongoing instalment payments. However, where it appears that an annuitant is making separate requests in order to minimize the income tax withheld, for example, where a series of requests are made in a short period of time, it is our position that the withholding rate should be determined as if there was one request equal to the total of all amounts requested. Thus, a higher withholding rate could apply. We suggest payers use their discretion since it is sometimes difficult to apply these rules in these situations.

April 4, 2020
10:29 am
GICinvestor
Member
Members
Forum Posts: 670
Member Since:
April 26, 2019
sp_UserOfflineSmall Offline

No I am not trying to avoid any thing.

But the multiple withdrawal from RRIF I saw being done by my mother in laws advisor.

April 4, 2020
11:12 am
Winnie
Ontario
Member
Members
Forum Posts: 358
Member Since:
December 7, 2011
sp_UserOfflineSmall Offline

GICinvestor said
So for $12,000 is there a tax savings? Yes, sort of, take 3 withdrawals; $5000, $5000, and $2000. For a 10% hold back.
 

I tried that in AcceleRate Financial, didn't worked. First withdrawal $5000. Second $4000 withdrawal 2 weeks later - full 20% for all $9000 ($500 hold back from $5000 and $1300 from $4000).

April 4, 2020
11:37 am
GICinvestor
Member
Members
Forum Posts: 670
Member Since:
April 26, 2019
sp_UserOfflineSmall Offline

Winnie said

GICinvestor said
So for $12,000 is there a tax savings? Yes, sort of, take 3 withdrawals; $5000, $5000, and $2000. For a 10% hold back.
 

I tried that in AcceleRate Financial, didn't worked. First withdrawal $5000. Second $4000 withdrawal 2 weeks later - full 20% for all $9000 ($500 hold back from $5000 and $1300 from $4000).  

If too much was taken, you will get it back as a refund.

I “was” going to put some of my RRSP money with Accelerate but opted to go elsewhere. Keep in mind.....you can move some to 1 or 2 more FIs.

I just have a problem with how I will control TFSA withdrawals (x RRIF $) from Oaken with there asinine no savings account for registered accounts.

April 4, 2020
12:57 pm
Londonguy
Member
Members
Forum Posts: 533
Member Since:
May 27, 2016
sp_UserOfflineSmall Offline

GICinvestor said
No I am not trying to avoid any thing.

But the multiple withdrawal from RRIF I saw being done by my mother in laws advisor.  

I'm curious, was she being charged a separate fee per withdrawal or were they all free?

April 4, 2020
1:14 pm
GICinvestor
Member
Members
Forum Posts: 670
Member Since:
April 26, 2019
sp_UserOfflineSmall Offline

Londonguy said

I'm curious, was she being charged a separate fee per withdrawal or were they all free?  

A withdrawal fee from the FI? No.

And I have done withdrawals from Hubert....all free.

Not sure about others. I know some have one free withdrawal per year and then a fee. I do know that Accelerate will allow you to take 20% more than the compulsory but maybe Winnie can tell us of their policy. One also needs to manage GIC's to mature in the year you may want the $.

I was sharp and making my decisions of where to deposit and no withdraw free, any amount and that is why I chose Oaken and Hubert. And I believe both do not charge to transfer out either. I just wish I did not get attracted to the rates at Oaken and put some TFSA money there.

I have used interest over the years to top up my annual requirements. And eventually I would like to see TFSA interest deposited to a TFSA savings annually and either use it and if not, use it for a one year GIC as long as the accumulated interest is over $1000. But at this point I don't need RRSP RRIF or TFSA to live on even though I lost 30% of my pension along with Medical, Dental, Discount, and a fully paid life insurance policy. I guess this year I will have to set up all my RRSP to go to RRIF. But would like to set up that option.....but my crystal ball is fuzzy!!!!

My daughter works for an investment company and are currently swamped with requests to cut the RRIF payments, due to Covid19, by 25%. Personally I don't see the point of it. If you get too much then put it in a TFSA. But for other reasons there must be a use for it.

April 4, 2020
2:14 pm
Loonie
Member
Members
Forum Posts: 7498
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Here is how I understand the reason for allowing a reduction in RIF mandatory withdrawals:

The mandatory withdrawal is based on the balance as of Dec 31 of previous year. Thus, if you had 400K as of last year end and your withdrawal rate is now 5%, you would be required to withdraw 20,000.

If your investments have tanked since Jan 1, your RIF might now only be worth 300K (as an example).

If you must take out 20K, that leaves you with 280,000.
This new starting point of 280K will make it a bigger challenge for you to build up your nest egg again in future if you are actually depending on your RIF to meet your needs. It could extend the life of your RIF and thus make you less likely to need support from the government support programmes down the road.

With this change that the gov't has put forward, you might only need to withdraw 15K, leaving you with more potential for gains when/if the economy rebounds.

It will probably legitimately benefit some people, but the ones who can afford to have less income this year from their RIF will be those who don't really need a break from the government. They will be the people for whom tat extra 5K (or whatever) is not needed for annual expenditures.

For me personally, it is of no use. We normally top up our tax bracket with additional RIF withdrawals anyway, so have no need for less. Our goal is to deplete, not to extend, the RIFs as soon as reasonably possible in terms of tax efficiency, although this is becoming more difficult every year!

I am curious what they will do about those whose annual mandatory withdrawal occurred early in the year though. Can their money somehow get re-deposited to the RIF?

April 4, 2020
2:55 pm
Bill
Member
Members
Forum Posts: 2633
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

From gov't Q & A's: Will individuals who have already withdrawn more than the reduced 2020 minimum amount be permitted to re-contribute to their RRIFs an amount up to the 25% proposed reduction?
No. Individuals who have already withdrawn more than the reduced 2020 minimum amount will not be permitted to re-contribute to their RRIFs an amount up to the 25% proposed reduction.

April 4, 2020
2:59 pm
GICinvestor
Member
Members
Forum Posts: 670
Member Since:
April 26, 2019
sp_UserOfflineSmall Offline

Thanks Loonie. Tanked is the key word! I did not think about that. I took 99.9999% of our stuff out of the market years ago. We only have a share each of FIE. The monthly dividends force iTrade to provide us with a monthly statement due to a “change”. Once GICs mature iTrade will be toast for me too. It all makes sense. Thank you.

Please write your comments in the forum.