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How much can I take out of my RRSP if I don't work next year?
March 29, 2014
6:15 pm
Felixthecat
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March 29, 2014
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I'll be 62 next year.

Let's say I have $90,000 in RRSP money.

I have no company or other pension but anticipated CPP of about $600 a month at 65.

I want to stop work at 62 and I'm considering living on RRSP money for three years, then applying for CPP, OAS and whatever else I qualify for at that time.

I've been told if I have no earnings after 65 and if I have no more RRSPs to cash in after 65 then there will be no clawback of OAS for example.

If I take out $30,000 a year from ages 62 to 63, 63 to 64 and 64 to 65 how much will I have to pay back in income tax?

What if I take out $24,000 a year to live on? That's more than I'm earning now at my self employment.

What's the tax on that?

My wife is exactly the same age as me with no CPP pension at all. What can she qualify for in OAS?

March 29, 2014
6:32 pm
Rick
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Up to 5000.00 they withhold 10% by law at the time of withdrawing. 5001.00 to 15,000, they withhold 20%. 15001.00 and up they withhold 30%. When income tax time rolls around, your marginal tax rate will determine if they withheld enough, and you may find yourself with a big tax bill. I would recommend talking to an accountant or financial planner for some advice. That is all I know about for sure, I'll leave the rest of your questions for someone with more knowledge to answer. PS...it MAY be worth your while to apply for CPP right away instead of waiting. They are in the process of changing the rules.

March 29, 2014
6:37 pm
Rick
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PPS...I believe the clawback for OAS is quite high....far more than you would be getting on CPP. Somewhere around 68 or 70,000.

Check this site out:
http://retirehappy.ca/minimizi.....-clawback/

March 29, 2014
10:48 pm
kanaka
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Like Rick said and also check out your options of putting some or all of your RRSP into RRIF as you can income split the withdrawal at age 65. See here on page 2 https://repsourcepublic.manulife.com/wps/wcm/connect/10740380431cf7048bae8b37985f10c7/inv_trs_mk2070.pdf?MOD=AJPERES&CACHEID=10740380431cf7048bae8b37985f10c7
Or google for more info. Keep in mInd when you start a RRIF there are minimum annual mandatory withdrawals . Also if you do your own income tax using software. Do another one for you and your wife and put in some t4ps entries and see want you need and what you can get away with determine what tax reared you will to pay. Ie a 15000 withdrawal will net you 12000. You will enter a t4ps for 15000. I am winding down all,of my RRSP for other reasons and to stay at the 22% tax bracket we both withdraw 15000 each. 12000 to me and 12000 to wife. Then 5500 goes to TFSA right away and the rest is reallocated to previous TFSA purchases that were not funded from RRSP money. Once the reallocation is finished I will set up investment separately to identify them as x RRSP money and untouchable for as long as possible....but may use the interest only from non registered investments..

March 30, 2014
7:05 am
Loonie
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If you don't want the expense of a financial planner etc., you should try working through a few scenarios on income tax forms, which you can download from CRA site - although there are very badly organized, but it's all there.

Note that at age 65+, if you have not cashed out your RRSP and you convert it to RIF or buy an annuity, you can get a Pension Income Tax Credit on $2000/yr of it. http://retirehappy.ca/are-you-.....e-pension/

I think you need to do the math on exactly what you would be entitled to in terms of income at age 65, so that you can make a realistic decision. I am not sure what it would be, and it depends on what province you are in. Perhaps contact your MP's office for some assistance with figuring this out, as that would not cost you any money.

As for your wife, OAS is adjusted regularly for inflation, so it will probably be different when she turns 65 than what it is now. Also, she will qualify for additional supplements probably, if that is her only source of income.
See http://www.servicecanada.gc.ca.....me+Seniors

March 30, 2014
8:23 am
Norman1
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Felixthecat said
My wife is exactly the same age as me with no CPP pension at all. What can she qualify for in OAS?

OAS is based on the number of years lived in Canada after the age of 18. Those who lived in Canada for at least 40 years after the age of 18 will receive the maximum OAS pension. Others will receive 1/40th of the maximum OAS pension for each such year, if they have lived at least 10 such years in Canada: Service Canada: How the Old Age Security pension is calculated

The maximum OAS pension is adjusted for inflation and is currently $551.54/month.

For 2013, the 15% OAS clawback starts at $70,954 of income. Each $1 of income one has above $70,954 will result in $0.15 of OAS repayment. OAS will be fully clawed back for those with income at or over $114,815.

March 30, 2014
8:50 am
Norman1
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Felixthecat said
If I take out $30,000 a year from ages 62 to 63, 63 to 64 and 64 to 65 how much will I have to pay back in income tax?

What if I take out $24,000 a year to live on? That's more than I'm earning now at my self employment.

What's the tax on that?

There's no special tax rate for RRSP withdrawals. The amount withdrawn is included in one's income that year and usual calculations kick in.

There is a tax withholding on each RRSP withdrawal:

  • 10% (5% in Quebec) on amounts up to $5,000;
  • 20% (10% in Quebec) on amounts over $5,000 up to including $15,000; and
  • 30% (15% in Quebec) on amounts over $15,000.

But, that is a tax withholding, like the tax withholding on each paycheque, which is credited against final taxes owing for the year. It is not a special, separate tax. The income taxes one ends up paying for the RRSP withdrawal could be more or less than the tax withholding. CRA has the following warning on their site:

The tax that was withheld may not always be enough to account for the tax you owe at your tax bracket. You may have to pay more tax on the withdrawal when you include the withdrawal on your income tax and benefit return for that year.

March 30, 2014
9:29 am
kanaka
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Before you decide what age to retire you may want to know what your CPP payments will be. As CPP is not a fixed amount and is based on your contributions to the plan. You can do it online as per http://www.servicecanada.gc.ca...../soc.shtml

March 30, 2014
10:27 am
Norman1
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kanaka said
Before you decide what age to retire you may want to know what your CPP payments will be. As CPP is not a fixed amount and is based on your contributions to the plan. You can do it online as per http://www.servicecanada.gc.ca...../soc.shtml

One can also request a copy of one's CPP Statement of Contributions by mail using Service Canada form ISP2000.

March 30, 2014
11:49 am
GS1
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One can also make an appointment with Service Canada and then visit one of their agents in person at a Service Canada Centre. I was pleasantly surprised when I did that about 7 years ago as I expected surly service.

The chap I met with was extremely helpful. I have found that both Service Canada and CRA have really made remarkable strides in the area of customer service over the past 10 or so years.

And, just now while digging up the link for this message I see they have added "Scheduled Outreach Sites". Of the two that I looked at, one was open Mondays and Wednesdays of every week and the other was open one day every second month. These appear to be sites in more remote areas and supplement the Service Canada Centres which keep a more regular set of hours. Again, kudos to our Government for this additional bit of customer service.

Greg

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