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Withholding Tax Oaken RRSP
December 9, 2023
12:15 pm
lifeonanisland
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My spouse and I both have laddered RRSP GICs maturing at Oaken this year. When they mature, we will be withdrawing the funds from the RRSP as part of our retirement income, and we recognize that Oaken will deduct the CRA withholding tax. BUT...we think that Oaken's new RRSP savings account will prevent us from overpaying income tax (or allow us to defer a greater amount of income tax until we file in 2025 for 2024). In other words, when the GICs mature, instead of pulling out the entire amount at once, we can move it to the RRSP savings account and then make a series of withdrawals of up to $5,000 throughout the year, and thus only have 10 percent withheld each time, instead of the 20 percent ($5,000 to $15,000 lump sum) or 30 percent ($15,000 + lump sum). This is the first time we'll withdraw from an RRSP, so I would like to know if this is in fact how it works, or if it's based on an entire amount per year instead of per withdrawal. I did an unsuccessful search online and on this forum to find this information, and could wait until Monday to call an institution, but thought I'd avoid waiting on hold and see if any of the big-brained contributors to this forum could shed some light on this. Thanks in advance.

December 9, 2023
12:33 pm
NorthernRaven
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https://www.taxtips.ca/rrsp/withholding-tax-deducted-from-rrif-and-rrsp-withdrawals.htm#multiple-lump-sump-withdrawals-rrsp-rrif

As long as you aren't setting up a scheduled batch of withdrawals with the bank or anything, looks like it is fairly clear that arbitrary withdrawals by you aren't treated cumulatively. It doesn't seem like it is CRA's goal to completely prevent the 10% rate on the taxpayer's aggregated withdrawals, just to prevent breaking up a single requested payment or payment schedule into multiples for the lower withholding.

Of course, it is all the same taxable amount (the pre-whithholding number), and you'll owe the same amount of tax on your return eventually.

December 9, 2023
12:50 pm
Wrayzor
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I've been able to make multiple $5k RRSP withdrawals in a year and have had the tax withholding at 10% each time (not with Oaken).

I wouldn't tell them that you intend to make a series of withdrawals, so phrasing of the question to them could be important.

You may have a timing issue as your GICs mature this year and the RRSP savings account won't be available until January. I guess a short term GIC could be the bridge.

December 9, 2023
12:55 pm
AltaRed
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As has been discussed before, if one is 65+, one can get 'pension income tax credit' by withdrawing via RRIF vehicle rather than RRSP. $2k credit per person @ 15% non-refundable tax credit is worth $300 in lower tax.

December 9, 2023
12:56 pm
NorthernRaven
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However, it does appear that the bank has discretion, and the CRA guidance mentions "...a series of requests made in a short period of time". So if you did a bunch of $4999 withdrawals in the same month or something, they'll likely flag that. This RBC guidance pamphlet gives an example of "...a series of separate
deregistration requests were placed for successive days...", which isn't what you are describing.

So if you come along and do one every month or two arbitrarily, that sounds like you aren't breaking the spirit of the CRA guidance. Normal disclaimers - I don't actually know what I'm talking about... 🙂

You'd want to make sure there are any withdrawal or "partial deregistration" fees. You'd get hit with these on a RRSP withdrawal at most brokerages, for instance, but I don't think banks like Oaken or EQ generally have them?

December 9, 2023
1:24 pm
lifeonanisland
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All feedback greatly appreciated! NorthernRaven, this is interesting from the RBC Dominion Securities pamphlet:

"Series of withdrawals from an RRSP
In a different example, if instead the withdrawals were made from an RRSP, and a series of separate deregistration requests were placed for successive days, it is quite likely that the initial withdrawal would be subject to the lump sum withholding tax rates from the table on page 1. But, later withdrawals within the same pattern or series of withdrawals may be considered cumulative and subject to a higher withholding tax rate from the table.

Based on the CRA's guidance, your advisor should not advise you to make RRSP withdrawals using a series of requests for the purpose of minimizing your withholding taxes. If you request a series of withdrawals to remove funds from your RRSP on an unsolicited basis, you should be aware that the CRA advises against this practice. As explained in the previous paragraph, a series of withdrawals from your RRSP will still be subject to potentially higher withholding tax rates, and you are ultimately responsible for any resulting tax liability when you file your own personal income tax return."

Our idea would not be to preauthorize any scheduled withdrawals. Perhaps than $5,000 once a month or once every two months, unscheduled, if and as required. I suspect this would fly under the radar, but if this was somehow flagged by the institution, it's not the end of the world. Would just have to pony up the entire withholding tax (20 or 30 percent depending on the total yearly withdrawal) and, if there is overpayment, it would be refunded when filing was complete. Interesting.

December 9, 2023
6:51 pm
serendipity
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I too have done multiple withdrawals for less than $5000 but over $14,000 in total. I have only been hit with a 10% withhold each time. Years ago my advisor suggested to do it that way to avoid the > 10% withhold. But do keep in mind ….. it’s all taxable at year end. (I manually keep 10% set aside to cover taxation.) Also keep in mind if the funds were in a RRIF, the mandatory withdrawal is not taxed on …. only the extra amounts. And you can, depending on age, have money in RRSP and RRIF. Check out a withdrawal table…most banks have one. If you are looking at withdrawing from now on, consider moving funds to a RRIF. Estate wise the sooner you have depleted your RRIF or RRSP the better. If you don’t need the registered funds but can pull out more than what is needed and stay in your current or lowest tax bracket…..take it out and put into a TFSA?

Just one other thing. You are at Oaken and Oaken has Home Bank and Home Trust. Do you have all your RRSP in one and does your wife have all of hers, in the other? Keep in mind, in the event of death, to avoid being over the CDIC limits you don’t want to have over $100,000 in one or the other. If that is the case they will accommodate you to balance it out accordingly.

December 10, 2023
10:10 am
lifeonanisland
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serendipity said
I too have done multiple withdrawals for less than $5000 but over $14,000 in total. I have only been hit with a 10% withhold each time. Years ago my advisor suggested to do it that way to avoid the > 10% withhold. But do keep in mind ….. it’s all taxable at year end. (I manually keep 10% set aside to cover taxation.) Also keep in mind if the funds were in a RRIF, the mandatory withdrawal is not taxed on …. only the extra amounts. And you can, depending on age, have money in RRSP and RRIF. Check out a withdrawal table…most banks have one. If you are looking at withdrawing from now on, consider moving funds to a RRIF. Estate wise the sooner you have depleted your RRIF or RRSP the better. If you don’t need the registered funds but can pull out more than what is needed and stay in your current or lowest tax bracket…..take it out and put into a TFSA?

Just one other thing. You are at Oaken and Oaken has Home Bank and Home Trust. Do you have all your RRSP in one and does your wife have all of hers, in the other? Keep in mind, in the event of death, to avoid being over the CDIC limits you don’t want to have over $100,000 in one or the other. If that is the case they will accommodate you to balance it out accordingly.  

Thanks for confirming what I thought. And yes, no worries, have taken into account all of your advice re: end of year taxation, RRIFs, and depletion of registered funds. Also, all funds distributed widely and will be able to do this at other institutions we use...but up until this point, Oaken has not had a RRSP savings account option. Can I ask you a question, Serendipity? How far apart were your <$5K withdrawals spaced typically?

December 10, 2023
8:42 pm
serendipity
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@lifeonanisland

We have been pulling funds out of RRSP way before 71. And now the mandatory RRIF is taken. We get around $6000 and $5000 each. I hold back 10% in an excel ledger for taxes. Then I pull, usually out of mine … not my wife’s enough to buy our annual TFSA allotment. I have to calculate how much more I need and what I need to take out minus 10% so the net is plus the mandatory minus my 10% withhold equals $14,000 (this year ?). Our mandatory comes out in May and April. I usually have a few thousand all year around in HISA at Hubert. Our maturity dates are before the RRIF payout dates. I should drive our mandatory dates to early January. Then do the TFSA ASAP just in case. I am trying to wind down as much as possible from our RRIFs. We have never used/spent any RRIF or TFSA money.

How far apart? Maybe a month. Just so they don’t remember me. Ha ha, like they will see it on the screen any ways. Oaken sends you mail of upcoming RRIF maturities. They make it clear on the letter that a withdrawal will have a withhold and is not part of your mandatory payment.

I need to do a better job at Oaken for amounts, maturity dates and targeted GICS to match the payment from the GIC of my preference. I guess there might be a new set of rules now that they have RRSP and hopefully RRIF HISA accounts.

December 10, 2023
8:45 pm
lifeonanisland
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serendipity said
@lifeonanisland

We have been pulling funds out of RRSP way before 71. And now the mandatory RRIF is taken. We get around $6000 and $5000 each. I hold back 10% in an excel ledger for taxes. Then I pull, usually out of mine … not my wife’s enough to buy our annual TFSA allotment. I have to calculate how much more I need and what I need to take out minus 10% so the net is plus the mandatory minus my 10% withhold equals $14,000 (this year ?). Our mandatory comes out in May and April. I usually have a few thousand all year around in HISA at Hubert. Our maturity dates are before the RRIF payout dates. I should drive our mandatory dates to early January. Then do the TFSA ASAP just in case. I am trying to wind down as much as possible from our RRIFs. We have never used/spent any RRIF or TFSA money.

How far apart? Maybe a month. Just so they don’t remember me. Ha ha, like they will see it on the screen any ways. Oaken sends you mail of upcoming RRIF maturities. They make it clear on the letter that a withdrawal will have a withhold and is not part of your mandatory payment.

I need to do a better job at Oaken for amounts, maturity dates and targeted GICS to match the payment from the GIC of my preference. I guess there might be a new set of rules now that they have RRSP and hopefully RRIF HISA accounts.  

Thank you.

December 10, 2023
8:47 pm
serendipity
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@ lifeonanisland

TMI??

Note. My $5000 withdrawals were in my RRSP days.

December 10, 2023
9:04 pm
lifeonanisland
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serendipity said
@ lifeonanisland

TMI??

Note. My $5000 withdrawals were in my RRSP days.  

Not at all. Grateful for your thoughts.

December 10, 2023
9:13 pm
lifeonanisland
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serendipity said
@ lifeonanisland

TMI??

Note. My $5000 withdrawals were in my RRSP days.  

PM sent, serendipity.

December 11, 2023
4:17 am
bhuc
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TD has a policy that multiple deregistration's from an RSP that are less than 90 days apart and the total amount would put the total amount into the next withholding tax bracket, TD would apply the higher withholding tax on the current withdrawal.

I'm not sure if they would withhold the higher amount on the sum of all withdrawals within in that 90 day period or just the last withdrawal.

I try to space my withdrawals out to exceed the 90 days rule. This however may not always possible especially at year end.

December 11, 2023
9:14 am
lifeonanisland
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bhuc said
TD has a policy that multiple deregistration's from an RSP that are less than 90 days apart and the total amount would put the total amount into the next withholding tax bracket, TD would apply the higher withholding tax on the current withdrawal.

I'm not sure if they would withhold the higher amount on the sum of all withdrawals within in that 90 day period or just the last withdrawal.

I try to space my withdrawals out to exceed the 90 days rule. This however may not always possible especially at year end.  

That's interesting. But it seems that's a institutional-specific policy, and not an industry-wide policy. Regardless, really useful info. Thank you.

December 11, 2023
9:20 am
serendipity
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Yup. You have to print off their RRSP and RRIF rules. Non are same.
And whether it’s 10% or 20% or more …. what’s the difference as at year end you have to pay, if short anyways.

December 11, 2023
11:03 am
bhuc
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serendipity said
Yup. You have to print off their RRSP and RRIF rules. Non are same.
And whether it’s 10% or 20% or more …. what’s the difference as at year end you have to pay, if short anyways.  

On withdrawals, at least with TD, they want the withholding tax as cash .

So it might make a difference to if its 10% or 20% or 30% cash required.
One might have to sell some equities for cash to cover the withholding tax.

December 11, 2023
7:49 pm
RetirEd
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Wow... nobody ever asked me to pony up cash for witholding! After all, that's why it's called witholding! They withold part of your withdrawal.

I, too, have done more than one <5K withdrawal in a tax year, but only on an as-needed basis, never a pre-authorized sequence. And never more than thrice in a year.

serendipity
said:

Yup. You have to print off their RRSP and RRIF rules. Non are same.
And whether it’s 10% or 20% or more …. what’s the difference as at year end you have to pay, if short anyways.

For those who are carrying high-interest debt, it makes a huge difference! Imagine they're facing a big bill and have to eat that witholding amount until the following year, with their debt interest clawing at their assets the whole time. The 10-20% difference on the amount waiting for a refund would mean a large chunk of change at consumer loan rates!

RetirEd

December 11, 2023
8:21 pm
Norman1
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Any required tax withholding on RRSP/RRIF withdrawals is considered to be tax withheld at source. So, the tax withheld has to be cash and be taken out of the withdrawal and not taken from another source.

If one wishes to withdraw an investment from a RRIF in-kind, valued above the RRIF minimum, then the withdrawal has to include some cash for the required source tax withholding.

December 11, 2023
10:08 pm
Norman1
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Question #7 of CRA: Frequently asked questions (RRSPs/RRIFs) has CRA's position on the source of the funds for the tax withheld:

7. Withholding tax on payments from a registered retirement income fund (RRIF)
….

Under a RRIF:

  1. a predetermined minimum amount must be withdrawn from the plan every year. This minimum is determined by a formula provided in the Income Tax Act and is determined at January 1 of each year;
  2. the annuitant can also elect to have any amount in excess of the minimum paid to him or her in the year and may change this election at any time during the year; and,
  3. income tax must be withheld at source on amounts in excess of the minimum using the lump-sum withholding tax rates. No withholding is required on minimum amounts.
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