When can I withdraw from RRSP

[The "Bone" Ranger]

Simple:

- you can withdraw at any time, you can even withdraw the day you make the contribution!
- depending on the amount there can be withholding tax deducted which will be taken into account when you file your income tax return the following year, however, the rate of tax at year end is based on your total income and based on the RRSP withdrawal amount
- one very important thing to remember and consider is that once you withdraw money from the RRSP (even for an emergency) you do not get the RRSP Contribution Room back (different from TFSA) so you should be damn sure you will keep the money in the RRSP for a while, of course using for downpayment on a home is an exception

Normally, registered vehicle that is meant for retirement has a minimum age as to when one can withdraw from such as LIRA and other pension arrangement....Is there such an age requirement as to when I can withdraw from RRSP??

I always thought that since RRSP is simply a deferred tax, I can withdraw at any time, except that I will just incur a RRSP incomein the year of withdrawal and will be taxed accordingly, is my assumption correct?

 

[shack]

I was responding to:



My answer was:: NO, RRSP withdrawals are always taxed as regular income. ".

Right. Which does not address the rate at all. You talk about "regular income". Regular income of $50K is not taxed at the same rate as regular income of $200K, so I am not sure how you addressed his question about rate.

 

[K Douglas]

Normally, registered vehicle that is meant for retirement has a minimum age as to when one can withdraw from such as LIRA and other pension arrangement....Is there such an age requirement as to when I can withdraw from RRSP??

I always thought that since RRSP is simply a deferred tax, I can withdraw at any time, except that I will just incur a RRSP incomein the year of withdrawal and will be taxed accordingly, is my assumption correct?

As long as it's not locked in you can withdraw from your RRSP anytime. Under $5K withdrawal will be subject to a 10% tax withholding. Over $5K I think it's 30%. The year you turn 71 your RRSP converts to an annuity, the most common one being a RRIF. Each year you are required to withdraw a minimum amount.

 

[danmand]

As long as it's not locked in you can withdraw from your RRSP anytime. Under $5K withdrawal will be subject to a 10% tax withholding. Over $5K I think it's 30%. The year you turn 71 your RRSP converts to an annuity, the most common one being a RRIF. Each year you are required to withdraw a minimum amount.

Correct, except it does not need to convert to an annuity. You can have a self directed RRIF.

PS: The minimum withdrawal amount from an RRIF is dependent on your age, but may be dependent on your spouse's age. A benefit of having a young spouse!!

 

[nottyboi]

Locked in RRSPs have different rules, you cannot really access them until you are 57, but regular RRSPs can be withdrawn at any time and are taxed as income with about 20% withholding rate over 5K.

 

[tombrady12]

If you must, withdraw in $5K increments. You'll only pay 10% withholding tax at source, compared to 30% if you take out over $15K all at once.

 

[oakvilleguy]

Fuji seems to have it most correct.

In any fiscal year the tax rates are the same whether you are retired or not. If your income is $100K you pay the same amount regardless of how much is RSP or other income. The whole concept is that in retirement one would assume an individual will have a lower income than when they are working. As such that individual who takes money from his RSP in retirement will most likely have a lower income than if they took the same amount while employed and as such will most likely be paying tax at a lower rate.

I'm sure there may be some anomalies, but that is the way it works in the vast majority of cases.

Also, there's the possibility of income splitting when it comes to RRSP income at retirement age of 65, which may reduce the amount of taxes paid if one of the spouses has very low income. But if both have a large pension and RRSP, then you're likely still going to be in one of the highest tax brackets.

 

[oldjones]

If you must, withdraw in $5K increments. You'll only pay 10% withholding tax at source, compared to 30% if you take out over $15K all at once.

Very true, and you have to remember that withholding amount is NOT the actual tax. When you file your actual return, and calculate the real tax owing, you may get some back if your income was low and your deductions high. Or you may have to pay a bit more, if your taxable income is high enough.

But unless you're forced to withdraw because you turned 71, you should be trying not to withdraw except in a tax-year with a low income.

 

[danmand]

If you must, withdraw in $5K increments. You'll only pay 10% withholding tax at source, compared to 30% if you take out over $15K all at once.

Not if it is in one year.

 

[danmand]

Also, there's the possibility of income splitting when it comes to RRSP income at retirement age of 65, which may reduce the amount of taxes paid if one of the spouses has very low income. But if both have a large pension and RRSP, then you're likely still going to be in one of the highest tax brackets.

The effective tax rate in retirement may also be increased by clawbacks of OAS etc.

 

[tombrady12]

Not if it is in one year.

Please explain

 

[danmand]

Please explain

I believe the financial institution is required to keep track of how much is withdrawn in a year, and adjust the withholding tax accordingly.

There are three levels of percentage withheld, depending on the amount of your withdrawal: Up to $5,000 will have a 10% (5% in Quebec) withholding tax. $5,001 to $15,000 will have a 20% (10% in Quebec) withholding tax. $15,001 or more will have a 30% (15% in Quebec) withholding tax.

 

[3wire]

I really think you should take the time and educate yourself. Get a book like RRSP's for Dummies or even a good financial planning book (for Canadians, our rules are different). The bottom line is you have to understand a few things:

1. A TFSA is like a piggy bank the taxman ignores once you put your money in it. You don't pay tax while it grows, or when you take it out, but you don't get a deduction when you put it in either.

2. An RRSP is like a piggy bank the government helps you to contribute to by reducing the tax you pay in the year you contribute. They expect you to pay tax on the money when you take it out. The tax rate you pay at that time, whenever it is, is the same rate you will pay on whatever your tax bracket winds up being based on your total income for that year.

The beauty is that you get tax free compounding in both cases. (You need to understand "The Rule of 72" to grasp this completely. Look it up). Suffice it to say if you had to pay tax on the money while it was compounding, you will wind up with a lot less growth at the end.

3. Both RRSP's and RRIF's can be run for you by your friendly banker, or run through a "Self Directed" plan that you or your financial planner will manage. If a Banker or Financial Planner is involved you will pay a price. I mean that figuratively and literally. If they put you into a bad/high management fund, you will suffer twice. A lot of times their fees are hidden (back-end load, front end load etc.) Banks have no legal requirement to look after your interests (Fiduciary Responsibility) and the Financial Planner will likely be on the beach long before you retire living comfortably on the exorbitant fees you paid him or her. Neither the Banker nor the Financial Planner will be there when you retire.

4. Keeping your costs low is extremely important (see Rule of 72 above). Not knowing the basics will cost you in more ways than one. So,

Take the time to educate yourself.

 

[oakvilleguy]

I really think you should take the time and educate yourself. Get a book like RRSP's for Dummies or even a good financial planning book (for Canadians, our rules are different). The bottom line is you have to understand a few things:

1. A TFSA is like a piggy bank the taxman ignores once you put your money in it. You don't pay tax while it grows, or when you take it out, but you don't get a deduction when you put it in either.

You can always count on the CRA to change the rules up on you if you're too successful in risking your own money to make money.

http://www.vancouversun.com/busines...successful+tfsa+investors/11132470/story.html

 

[tombrady12]

I believe the financial institution is required to keep track of how much is withdrawn in a year, and adjust the withholding tax accordingly

There are three levels of percentage withheld, depending on the amount of your withdrawal: Up to $5,000 will have a 10% (5% in Quebec) withholding tax. $5,001 to $15,000 will have a 20% (10% in Quebec) withholding tax. $15,001 or more will have a 30% (15% in Quebec) withholding tax.

No financial institution that I've dealt with (I'm in IT for financial industry) has systems in place to keep track of this.

 

[Kirby2006]

I believe the financial institution is required to keep track of how much is withdrawn in a year, and adjust the withholding tax accordingly.

There are three levels of percentage withheld, depending on the amount of your withdrawal: Up to $5,000 will have a 10% (5% in Quebec) withholding tax. $5,001 to $15,000 will have a 20% (10% in Quebec) withholding tax. $15,001 or more will have a 30% (15% in Quebec) withholding tax.

I've withdrawn $5000 on more than one occasion in a given year with a 10% withholding tax on each withdrawal.

 

[danmand]

I've withdrawn $5000 on more than one occasion in a given year with a 10% withholding tax on each withdrawal.

I stand corrected. Enjoy it while you can. I was told by TD Waterhouse that they track it.

 

[The "Bone" Ranger]

doesn't matter you are gonna have to pay the piper eventually

I stand corrected. Enjoy it while you can. I was told by TD Waterhouse that they track it.

I've withdrawn $5000 on more than one occasion in a given year with a 10% withholding tax on each withdrawal.

 

[Kirby2006]

doesn't matter you are gonna have to pay the piper eventually

Exactly. It's basically a down payment on your total tax bill. If you withdraw near the end of the year you may as well take a larger sum if that's what you need. Nearer the beginning of the year they've held your withholding tax for a year so better to try to minimize it.

 

[GPIDEAL]

No financial institution that I've dealt with (I'm in IT for financial industry) has systems in place to keep track of this.

I've withdrawn $5000 on more than one occasion in a given year with a 10% withholding tax on each withdrawal.

I've also never heard that they increase the withholding based on the number of withdrawals in a given year.

However, the risk of making too many small withdrawals means that not enough tax will be withheld, such that you will have a balance owing when your taxes are due at the end of April.