Pension question

[destillat]

So my employment has recently changed, and I need to transfer my registered pension plan balance into a LIRA.
That option also has a chunk of non-locked-in funds that I need to do something with.
I don't want to transfer it into an RRSP, because I want to use the money to enjoy life a bit before I get back into the workforce.
But if I just take it as cash, there is a hefty withholding tax, then it will also be taxed as income on top of that.

Does anyone have any tips or tricks on how to handle this money to minimize the tax impact?
Thanks in advance!

 

[Keebler Elf]

I'm no expert on this and you should take to a tax specialist but I've heard that there's a way to incorporate as a business and then use the money for that business and pay yourself with the business. Somehow that saves you taxes but there's a fair bit of upfront legwork you have to do to make it legit.

 

[interactive]

Without knowing the total spectrum - safest is to transfer to your RRSP and then take it as needed. Yes, even then there will be witholding taxes upon witdrawl but your are in control of the amount taken out versus the whole pop at once if you take the cash from your employer. If you are a while out of work the tax will be minimized when you file your return. When you file that is 'square up time' to see if the witheld tax was too low or high.
Bad time of year because if it was later say November or December you could bridge it until the next year.
Borrow the funds instead of withdrawing - then withdraw in next calendar year?
You will never really avoid the tax just defer paying it.
The whole concept being save the tax while in a higher bracket and withdraw & pay tax when you are presumably in a lower bracket.
But all in all - RRSP is simply a deferral of the enivitable - taxation.

 

[atlantica]

Keebler is completely mistaken. There is simply no way around it. If you withdraw money from that portion or from an RSP, a withholding tax will be withheld at source right away and you will be issued a T4 slip at year end for the complete amount to be added to your top tax bracket for the calendar year. Pending on your tax bracket, a loan or line of credit may be a cheaper source of play money.

 

[brocko]

Well obviously the good news is that you were in one hell of a good pension plan. The non registered money , unless you have contribution room in your rrsp , is subject to full tax with no other options available to you. Good luck with your job search.

 

[aznguy99]

So my employment has recently changed, and I need to transfer my registered pension plan balance into a LIRA.
That option also has a chunk of non-locked-in funds that I need to do something with.
I don't want to transfer it into an RRSP, because I want to use the money to enjoy life a bit before I get back into the workforce.
But if I just take it as cash, there is a hefty withholding tax, then it will also be taxed as income on top of that.

Does anyone have any tips or tricks on how to handle this money to minimize the tax impact?
Thanks in advance!

Normally pension money are to be transferred into a locked-in vehicle unless it is a small pension amount then you can get cash or transfer that amount to an RRSP.

 

[needinit]

So my employment has recently changed, and I need to transfer my registered pension plan balance into a LIRA.
That option also has a chunk of non-locked-in funds that I need to do something with.
I don't want to transfer it into an RRSP, because I want to use the money to enjoy life a bit before I get back into the workforce.
But if I just take it as cash, there is a hefty withholding tax, then it will also be taxed as income on top of that.

Does anyone have any tips or tricks on how to handle this money to minimize the tax impact?
Thanks in advance!

When you take the money, withholding tax is taken (usually 30 %)....this is a consideration towards income tax and the amount withdrawn is considered income - you are not taxed twice, just accounted for upfront and plays out at tax return time (ie a refund or not, depending on you income for the year and actual marginal tax bracket).

 

[Keebler Elf]

Keebler is completely mistaken. There is simply no way around it. If you withdraw money from that portion or from an RSP, a withholding tax will be withheld at source right away and you will be issued a T4 slip at year end for the complete amount to be added to your top tax bracket for the calendar year. Pending on your tax bracket, a loan or line of credit may be a cheaper source of play money.

Could be. That's why I said I'm not a tax expert. And now that I think about it, the situation I'm referring to is someone cashing out their pension rather than transferring it into a locked-in account, so that may be the difference.

 

[Nickelodeon]

So my employment has recently changed, and I need to transfer my registered pension plan balance into a LIRA.
That option also has a chunk of non-locked-in funds that I need to do something with.
I don't want to transfer it into an RRSP, because I want to use the money to enjoy life a bit before I get back into the workforce.
But if I just take it as cash, there is a hefty withholding tax, then it will also be taxed as income on top of that.

Does anyone have any tips or tricks on how to handle this money to minimize the tax impact?
Thanks in advance!

I would say that this money is in your pension plan for a reason...you will need it when you retire. The investment will grow over time and you won't regret it. See if you can find your "live for today" money elsewhere.