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RRSP withdrawal ramifications
June 12, 2020
9:02 am
fabafter50
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Hi Folks,
I could use some help understanding RRSP withdrawal.
I'm retired, not yet 65. I found this information:
Withdrawals are taxable. Any withdrawals from your RRSP are immediately subject to withholding tax. If you withdraw up to $5,000, the withholding tax rate is 10%; if you withdraw between $5,001 and $15,000, the withholding tax rate is 20%; and if you withdraw more than $15,000, the withholding tax rate rises to 30%.

What I need clarification on, aside from the withholding tax, is the amount withdrawn added to your income?
If you have more than one RRSP at different banks, is it the total you take out, not let's say $5000 from each one? I have two coming due from different banks, so wondered if I pay 10% on each $5000, or 20% cause the total will be 10,000?
If your RRSP GIC is 25,000, can you take $5000 out, and reinvest the rest, paying the 10% on the $5000 and putting the 20,000 back in an RRSP GIC?
Thanks in advance.

June 12, 2020
9:28 am
cruzinalong
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You are doing good. If you withdraw $5,000 from each, the withholding is 10% for each. FI may charge a withdrawal fee. The amount you can withdraw is $5,000 plus withdrawal fee. Say withdrawal fee is $50 + HST = $56.50. Withdraw $5,056.50. Pay $56.50 withdrawal fee. Pay 10% on $5,000. If you withdraw one cent more the withholding tax is 20%. If you need more later in the year take out up to $10,000 plus withdrawal fee. Withholding tax 20%. I consolidated my RRSPs years ago into one RRSP, I cannot do this. You claim on your income tax return next spring. You may get some back depending on your tax situation. Reinvest the balance in what you want.

June 12, 2020
9:55 am
fabafter50
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THANK YOU!
You've answered all my questions, very appreciated!sf-cool

June 12, 2020
10:13 am
GICinvestor
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fabafter50 said
Hi Folks,
I could use some help understanding RRSP withdrawal.
I'm retired, not yet 65. I found this information:
Withdrawals are taxable. Any withdrawals from your RRSP are immediately subject to withholding tax. If you withdraw up to $5,000, the withholding tax rate is 10%; if you withdraw between $5,001 and $15,000, the withholding tax rate is 20%; and if you withdraw more than $15,000, the withholding tax rate rises to 30%.

What I need clarification on, aside from the withholding tax, is the amount withdrawn added to your income?
If you have more than one RRSP at different banks, is it the total you take out, not let's say $5000 from each one? I have two coming due from different banks, so wondered if I pay 10% on each $5000, or 20% cause the total will be 10,000?
If your RRSP GIC is 25,000, can you take $5000 out, and reinvest the rest, paying the 10% on the $5000 and putting the 20,000 back in an RRSP GIC?
Thanks in advance.  

You might be wise to leave your RRSP (that will later convert to RRIF - age 71) in to one or more FI's. Some FI's only withhold PER withdrawal.
ie:
FI"1" take out $5000 and 10% will be withheld
FI"2" take out $5000 and 10% will be withheld
FI"1" take out another $5000 and 10% may be withheld OR they may with hold enough to gather a 20% withhold over both withdrawals. Check to see how your FI does it.

If you move all your RRSP to one FI and take out $10,000 you will look at a 20% withhold.
BUT if you have funds in 2 FI's and need $10,000 take $5000 from each for a 10% hold back.

But as mentioned if you are charged a withdrawal fee you have to take that into account too.

Managing withdrawals at 10% can be to your benefit as long as it does not cause you some consternation at tax time.

Also look to see if moving RRSP to RRIF will benefit you for income splitting.

Even though 10% or 20% with hold may be more than what is needed for your income taxes at year end you will be entitled to a refund and if not enough is withheld you will be honoured to cough up more for the tax man. All RRSP and RRIF withdrawals are taxable as income. It all depends on your other incomes and taxes withheld from them as well.

I can tell you that Hubert allows you to manage your own withdrawals and do withholds per withdrawal. So withdrawals on different days of say....$5000, $4500 and $1800 would have only 10% hold backs.

June 12, 2020
10:22 am
fabafter50
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That is something I wouldn't have thought of and will ask my FI.
I do have two coming due at Oaken in 2021. I will have to find out if I can take the $5000 from each one, without getting into the 20% bracket.
Thanks!

June 12, 2020
11:05 am
pooreva
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cruzinalong said
Say withdrawal fee is $50 + HST = $56.50. Withdraw $5,056.50. Pay $56.50 withdrawal fee.

This is little bit confusing to me.
You are advising to withdraw 5056.50 which will put person into 20% withholding bracket. Am I correct?
Should not be - withdraw $5000 and pay fee from another account????

June 12, 2020
11:10 am
pooreva
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GICinvestor said
I can tell you that Hubert allows you to manage your own withdrawals and do withholds per withdrawal. So withdrawals on different days of say....$5000, $4500 and $1800 would have only 10% hold backs.  

This is good to know. Unfortunately with Hubert you can have only hard, cold cash in RRSP/RIFF. I believe you cannot have stocks, mutual funds, etc. Same as their TFSA. Am I correct?

June 12, 2020
11:10 am
julio
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The following applies only if you will not have a qualified pension at 65. At 65, if not having other RRSP intentions, yearly convert $2,000. from RRSP into RRIF and cash this $2,000. out from this RRIF for the benefit of getting some pension tax credit on your tax return. Same withholding tax rules apply.

June 12, 2020
11:23 am
GICinvestor
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pooreva said

This is good to know. Unfortunately with Hubert you can have only hard, cold cash in RRSP/RIFF. I believe you cannot have stocks, mutual funds, etc. Same as their TFSA. Am I correct?  

Hubert = HISA or GIC terms only for both registered and non registered.

June 12, 2020
11:30 am
GICinvestor
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julio said
The following applies only if you will not have a qualified pension at 65. At 65, if not having other RRSP intentions, yearly convert $2,000. from RRSP into RRIF and cash this $2,000. out from this RRIF for the benefit of getting some pension tax credit on your tax return. Same withholding tax rules apply.  

fabafter50 Is retired and therefore maybe collecting a pension and federal and provincial pension credits. And you are mentioning a great idea in moving RRSP to RRIF then withdraw. It should be all free to do and the added bonus is RRIF is considered pension income and becomes splittable with spouse for more tax savings.....it makes a difference! Also no fear about mandatory RRIF payments just leave $5 in the account after the withdrawal(s) and no one should bother you.

June 12, 2020
4:59 pm
Alexandre
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RRSP/RRIF withdrawal considered income. If someone who is retired but not 65 yet plans to apply for GIS at the age of 65, it would be wise to fully liquidate RRSP before that.
Instead of holding to RRSP and rolling it into RRIF.

Also, with quite low interest rates, if you are concerned with withholding tax, take out from RRSP what you planned to withdraw for current year in December of that year. Just few months later you'll get overpayment back through tax return. Make your financial life a bit easier.

Mind you, taking, say, $50,000 out of RRSP with $5,000 "installments" to stick to 10% withholding tax will bite you on tax return when your $50,000 will be taxed as income at much higher rate than 10%.

June 12, 2020
5:09 pm
cruzinalong
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RRSP is tax deferred. Pay now. Pay later. One advantage of annual deposits you build a tidy amount of savings. Not sure I would have saved this much without a RRSP. I am getting close to forced RRIF withdrawals. The tax I will pay is less than when I was working.

June 12, 2020
5:53 pm
Rick
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My concern is if I only take out 5K increments, I'll be hit with a tax bill at tax time. Owe too much and they'll start demanding quarterly payments. Rather take out closer to my tax rate at 20% withholding than 10.

June 12, 2020
6:01 pm
GICinvestor
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Rick said
My concern is if I only take out 5K increments, I'll be hit with a tax bill at tax time. Owe too much and they'll start demanding quarterly payments. Rather take out closer to my tax rate at 20% withholding than 10.  

Withdraw at 10% and keep the other 10% in a sock. If you need it for tax time use it. If not invest or spent it.

June 12, 2020
6:05 pm
cruzinalong
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Rick said
My concern is if I only take out 5K increments, I'll be hit with a tax bill at tax time. Owe too much and they'll start demanding quarterly payments. Rather take out closer to my tax rate at 20% withholding than 10.  

Over the years I waited for my tax refund in the spring. Not sure how I will handle quarterly installments. If I do not like, I can make tax payment late in year. (i.e. December). Last year I withdrew money from RRSP. The withholding tax was 21.7%. I got about 80% back.

June 12, 2020
8:17 pm
Loonie
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Rick said
My concern is if I only take out 5K increments, I'll be hit with a tax bill at tax time. Owe too much and they'll start demanding quarterly payments. Rather take out closer to my tax rate at 20% withholding than 10.  

If you think it would be to your advantage, you can instruct your RSP FI to take off additional withholding tax. You can specify how much.

June 13, 2020
1:45 am
Rick
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Thanx for the tips. Still in "saving" mode...haven't started "spending" mode yet. Could be another few years.

June 13, 2020
3:47 am
cruzinalong
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Rick said
Thanx for the tips. Still in "saving" mode...haven't started "spending" mode yet. Could be another few years.  

You can take money out of an RRSP ANYTIME. My first RRSP withdrawal was about 3 years contribution in 1981 when interest rates were in the 17%-19% range.

June 17, 2020
3:00 am
Rick
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GICinvestor said

Withdraw at 10% and keep the other 10% in a sock. If you need it for tax time use it. If not invest or spent it.  

I already have enough cash. RSPs & TFSAs are maxed out & covered up to 2024. No use taking it out of tax sheltered and adding to the taxable...yet. I'm not working (much), so not adding to the RSP pile...it's just sitting there compounding.

Loonie said
If you think it would be to your advantage, you can instruct your RSP FI to take off additional withholding tax. You can specify how much.

When I was HSBC, I asked them to take off extra. They seemed to have a problem with it and only took minimum. I'm structuring to withdraw from RSPs at 20% withholding tax in increments to cover TFSA contributions until 71.

cruzinalong said
You can take money out of an RRSP ANYTIME. My first RRSP withdrawal was about 3 years contribution in 1981 when interest rates were in the 17%-19% range.

Yeah...did that in my 20's when I need a few extra bux. They withheld 10% and boy, did I get dinged at tax time. Wonder what that 2500 would be worth now after 40 years of compounding?

pooreva said
This is little bit confusing to me.
You are advising to withdraw 5056.50 which will put person into 20% withholding bracket. Am I correct?
Should not be - withdraw $5000 and pay fee from another account????

Good question. I'm guessing since the money is a fee and not a withdrawal, it wouldn't count towards the total. I did have Motive take a RSP transfer fee out of my regular savings account just so as not to diminish the RSP balance with fees.

Spouse it still working, for how long we don't know. That is when things will switch from saving to spending mode. Just trying to set things up to stay under max income to avoid claw-backs, and keep quarterly payments from kicking in. I still have another few years before I hit 65 and everything changes.

June 17, 2020
1:39 pm
pooreva
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Rick said
I already have enough cash.

Hmmm. Define 'enough cash'. 500K? 1 mill? 10 mill?

Just trying to set things up to stay under max income to avoid claw-backs, and keep quarterly payments from kicking in. I still have another few years before I hit 65 and everything changes.  

What is the max 'income' before you start paying taxes for a couple?

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