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I have some RSP and tax questions
November 22, 2013
9:42 am
rick31797
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I am 57 yrs old and i am planning on drawing from my RSP, and thinking about liquidating all my investments by the time i turn 65.The reason i am thinking about doing this now, is because my income is low and my deductions are high,as to being on disability....at the moment the income tax i pay, i get back at the end of the year.When i turn 65,i will loose my disability deductions, and i will be drawing CPP.

I am thinking the next 8 years is the time i should cash in my RSP,as my deductions will help absorb the tax that is needed to be paid
but i also realize when i turn 65 , i will get an Age Amount deduction of 6720.00 /2012

Am i thinking right , and if i do this, for eg. Say i take 8,000.00 the first year, the bank takes 20 percent tax. which is 1600.00
6400.00 will be added to my income, what i am confused about when i get a the T-5 from the bank, will it have 6400.00 income and 1600.00 tax deducted, and the 1600.00 tax deducted , you can claim on page 4 of your income tax, total tax deducted..
thanks for any help, hope this is not too confusing just trying to do the right thing.

November 22, 2013
10:51 am
ValueTime
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You will receive a Canada Revenue type document from the bank. Whatever it is you will see a box showing the total taxable amount you withdrew ($8,000) and another box will show amount of tax submitted to CRA which you calculate as 20% or $1,600.

My wife and I moved most of our RSP to RIF a couple of years ago, thereafter I've been draining the RIF and receive a T4RIF from bank showing withdrawals and taxes withheld.

You might want to investigate migrating your RSP to a RIF for this reason. Within an RSP you cannot take funds from a GIC without collapsing it, losing interest and perhaps triggering a penalty whereas if you have GICs held within a RIF the financial institution must allow you to withdraw funds from the GIC without penalty.

November 22, 2013
2:11 pm
kanaka
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rick31797 said

I am 57 yrs old and i am planning on drawing from my RSP, and thinking about liquidating all my investments by the time i turn 65.The reason i am thinking about doing this now, is because my income is low and my deductions are high,as to being on disability....at the moment the income tax i pay, i get back at the end of the year.When i turn 65,i will loose my disability deductions, and i will be drawing CPP.

I am thinking the next 8 years is the time i should cash in my RSP,as my deductions will help absorb the tax that is needed to be paid
but i also realize when i turn 65 , i will get an Age Amount deduction of 6720.00 /2012

Am i thinking right , and if i do this, for eg. Say i take 8,000.00 the first year, the bank takes 20 percent tax. which is 1600.00
6400.00 will be added to my income, what i am confused about when i get a the T-5 from the bank, will it have 6400.00 income and 1600.00 tax deducted, and the 1600.00 tax deducted , you can claim on page 4 of your income tax, total tax deducted.
thanks for any help, hope this is not too confusing just trying to do the right thing.

Hi I am in the midst of doing the same for different reasons.
I want to avoid claw backs and any government subsidized programs that are linked to income. My reason is much longer and I won't bore you with it.

Keep a few things in mind.
Try not to withdraw an amount that will put you into your next tax bracket.
If you can do spousal income splitting see what that can do for you.
15000 is the limit for 20% tax hold back.
If you have your own income tax software put in some "test" T5 entries for you and your spouse and determine what is the best amount to withdraw, keeping within your tax bracket.
If you take out 8000 your T5 will show 8000 income and 1600 income tax deducted which may be too much or not enough. Your financial institution will provide the T5. Bank or investment dealer.
Keep in mind that not only income splitting will possibly allow more than 15000 each for you and your spouse if your spouse has RRSP too and also keep in mind you can convert your RRSP to a RIF and the income is split able too but I believe that only kicks in at age 65.
Consider reallocating RRSP money to TFSA already purchased and definitely put the max amount into your TFSA and spouses too from the proceeds of your RRSP withdrawal.
Find other investments to invest in that will have a lower tax rate than a savings account or GIC.

Any questions, please ask.

November 22, 2013
2:17 pm
kanaka
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ValueTime said

You will receive a Canada Revenue type document from the bank. Whatever it is you will see a box showing the total taxable amount you withdrew ($8,000) and another box will show amount of tax submitted to CRA which you calculate as 20% or $1,600.

My wife and I moved most of our RSP to RIF a couple of years ago, thereafter I've been draining the RIF and receive a T4RIF from bank showing withdrawals and taxes withheld.

You might want to investigate migrating your RSP to a RIF for this reason. Within an RSP you cannot take funds from a GIC without collapsing it, losing interest and perhaps triggering a penalty whereas if you have GICs held within a RIF the financial institution must allow you to withdraw funds from the GIC without penalty.

I guess age does not matter for this question. If I am 2 years into a five year GIC, can I convert that GIC to a RIF without collapsing it?

Thanks Peter

November 22, 2013
10:41 pm
GS1
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kanaka said

[snip]

I guess age does not matter for this question. If I am 2 years into a five year GIC, can I convert that GIC to a RIF without collapsing it?

Thanks Peter

Peter:

A GIC is a form of investment. An RSP and a RIF are types of accounts that might hold a GIC.

So, can you convert a GIC to a RIF. Not really, but you might have a GIC in an RSP that you transfer into a RIF.

Be careful, however, as once you get investments into a RIF there is a mandatory withdrawal and so you need one or more investments inside the RIF that can be withdrawn to meet the mandatory yearly withdrawal. If all that is inside the RIF is a single GIC I am not sure how the financial institution would treat it.

GS

November 23, 2013
9:30 am
rick31797
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I really appreciate your comments, alot to think about and consider.

I want to take my last years income tax and calculate it adding 8,000.00 to my income , so in order to add 8,000.00 to my income would i have to take out 9,999.99 @ 20 percent , tax =1,999.99
9,999.99 - 1,999.99 = 8,000.00

if this is right, would i claim, 8,000.00 as income and 1,999.99 as tax deducted, on my income tax.Rick

November 24, 2013
11:02 am
kanaka
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GS said

kanaka said

[snip]

I guess age does not matter for this question. If I am 2 years into a five year GIC, can I convert that GIC to a RIF without collapsing it?

Thanks Peter

Peter:

A GIC is a form of investment. An RSP and a RIF are types of accounts that might hold a GIC.

So, can you convert a GIC to a RIF. Not really, but you might have a GIC in an RSP that you transfer into a RIF.

Be careful, however, as once you get investments into a RIF there is a mandatory withdrawal and so you need one or more investments inside the RIF that can be withdrawn to meet the mandatory yearly withdrawal. If all that is inside the RIF is a single GIC I am not sure how the financial institution would treat it.

GS

Hi GS.
Thanks for your reply. I know the difference (probably mis worded my question a bit, sorry) and do realize that if I convert a RRSP to a RIF that there is a mandatory withdrawal and that I must have a RIF or annuity at age 71 but can convert all or some RRSP funds to a RIF before age 71.
But based on what was said above " Within an RSP you cannot take funds from a GIC without collapsing it, losing interest and perhaps triggering a penalty whereas if you have GICs held within a RIF the financial institution must allow you to withdraw funds from the GIC without penalty"

So can you convert a GIC in an RRSP to a RIF? And does the above apply? Can I withdraw (partial or fully) from the GIC before it matures without penalty now that it is in a RIF?

November 24, 2013
2:14 pm
Doug
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I figured that's what kanaka meant, a GIC within an RRSP. As far as I am aware, there is no legislative or regulatory prohibition that would not permit converting an RRSP GIC into a RRIF GIC before you must convert your RRSP to a RRIF by Dec. 31st in the year in which you turn 71. (Thankfully, I have another 41 years before that will be necessary for me.) It is one of those things that we can't really answer on online forums as it really is up to the financial institution in which your RRSP and/or RRIF is with so this would be the ideal question for your deposit broker/financial advisor where you invest.

In a general sense, I would think, so long as the institution offers that same type of GIC in a RRIF format as they do an RRSP format (some institutions only have limited products available in different plans - such as HSBC, which only offers Mutual Funds in an RESP unless you open a self-directed brokerage account) and provided you're not changing any of the terms (i.e., wanting to shorten/lengthen the maturity date, the interest rate, etc.), most institutions would be accepting of this. :)

One caveat: some institutions (though likely not many, if any) may charge a transfer fee if you're transferring your RRSP to a RRIF before maturity, whether in full or partial. Again, check with your institution. As well, because it wouldn't be mandatory for you to start withdrawing the "annual minimum payment" from your RRIF until January of the year in which you turn 72, an institution may charge a fee for a "special withdrawal" from your RRIF, so again check with the institution. :)

Hope that helps,
Doug

November 25, 2013
8:32 am
rick31797
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SD2013 said

All good points everyone but answering your question about adding $8,000 income for a year is like this, whatever money you withdraw or take out of your RRSP or RRIF, in your example $8,000 total for the whole year, that is your taxable income.

Taxable income is your gross income, so if you take out $10,000, you are taking out too much income and you actually added $10,000 not $8,000 to your total taxable income.

The 20% RRSP or RRIF withholding income taxes on $8,000 is $1,600 not $2,000. Basically, whatever you take out from an RRSP or RRIF, that is your extra income added to your total taxable income.

For example, if you have $15,000 taxable income before you take money out of your RRSP or RRIF and then take out $8,000, your total taxable income is $23,000 for that tax year and will pay income taxes according to your total taxable income of $23,000.

Do not get so fixated on the withholding income taxes of 20% or whatever rate you pay. If you paid too much income taxes for 2012 or 2013, you will get back the higher difference as an income tax refund after April-30-2013.

Yes, you do claim the income tax deducted as a credit towards income tax owing and this will determine if you paid too much or too little in your final income taxes for 2012 or 2013 or whatever tax year you do this.

I hope this helped you rick31797.sf-cool

Thanks so much , very clear to me now... Rick

November 26, 2013
7:54 pm
kanaka
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Rick you may want to put "part" of your RRSP into a RIF account.

As per SD says:
This is why a person or couple that is or are 65 years or older and want to start taking money out of their RRSP's will pay about $360 to $400 more in annual income taxes if it is not from a RRIF or annuity.

I never realized that as I have always received the credit as when I got the golden hand shake it put me into retirement with pension.....and every year have had this credit as the pension is an annuity.

The other bonus to an annuity is income splitting but not til age 65.

December 4, 2013
1:53 pm
rick31797
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I am going to have to print all this great information out, thanks for your help.. I do get the disability tax credit,and will tell age 65 yrs old, my disability CPP Will end at age 65 yrs in 8 yrs. My disability income is also taxable income, they take tax out each check, but because of my tax deductions i have i get the tax all back. My wife does not have an income so i can claim her..

Thats why i wanted to start taking my RSP out and putting it into a tax free savings account..As it looks like i could raise my income by 8,000.00 and still will not have to pay tax..Alot to think about i want to get it right while i have time..Thanks Rick

December 4, 2013
5:23 pm
GS1
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Rick:

I hope you are aware your CPP benefits will go DOWN when you hit 65. A relative is getting a CPP disability and I ran their numbers through the formula to estimate their income when they reach 65. It appears, for them, that "new" CPP value plus OAS will be close to "disability" CPP value.

GS

December 5, 2013
8:44 am
rick31797
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Yes i do realize when i turn 65 yrs old my income will be lower, one thing that will help is at the moment i have no private medical plan, the company i worked for closed and i lost my medical benefit.

I went on the Trillium plan, and although its not near as good as what i had from work, its better then nothing.
It does not cover any dental, and i have a 673.00 deductable...Between me and my wife we are spending a little over 3,000.00 yearly for medications and dental, there are also a number of medications trillium will not cover.
What i am getting at is when i turn 65, most of my medications should be covered, which will help my lower income..Rick

December 5, 2013
8:50 am
kanaka
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rick31797 said

Yes i do realize when i turn 65 yrs old my income will be lower, one thing that will help is at the moment i have no private medical plan, the company i worked for closed and i lost my medical benefit.

I went on the Trillium plan, and although its not near as good as what i had from work, its better then nothing.
It does not cover any dental, and i have a 673.00 deductable...Between me and my wife we are spending a little over 3,000.00 yearly for medications and dental, there are also a number of medications trillium will not cover.
What i am getting at is when i turn 65, most of my medications should be covered, which will help my lower income..Rick

Hi, what dollar amount will the plan max out for you on an annual basis vs the cost? If you live in BC would pharma-care cover you? Does your province have similar?

December 5, 2013
9:27 am
rick31797
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I am in Ontario, i dont see any information on the dollar amount when max out.. Trillium deductable is 4 percent of your income...I dont think Ontario has pharma-care.

December 6, 2013
4:41 pm
GS1
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Rick:

I always thought Ontario's Trillium Drug Plan was for "poor people" but when I did the calculations I discovered anyone could use it, if they had prescription costs that exceeded their deductible. Obviously, higher income folks have a higher deductible. So, if someone with a higher income had some expensive drug needs they might well be covered.

As well, be aware the deductible is a family deductible. I am now in a situation where I am older than 65 and Mrs GS is less than 65 and so where we used to successfully split an $800 deductible she is now faced with using that all up herself as I am now covered by "old guys" Ontario Drug Plan.

Are you also aware there is a website for the Ontario Drug Formulary where you can research what is covered and what is not? I have discovered some strange cases where 200 mg tablets of drug X is NOT covered but 100 mg tablets of the same drug X is covered. I pointed this out to my pharmacist and he said, "ok, we'll fill the Rx with 100 mg tablets.

Greg

December 7, 2013
12:57 pm
rick31797
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Yes i have been to the web site, there are also exceptions to drugs that are not usually covered but with Doctors consent, they will..Rick

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