This is very interesting and informative. What is not clear is the withholding tax rate at the time of cashing out at age 71? Everybody talks about that at retirement one would most likely be in a much lower income tax bracket and thus pay much less withholding tax when cashing out. Considering a scenario where I would have $100K in my RRSP account at age 71, when I would have to either close my RRSP and cash out or convert to an annuity plan. Let’s say I opt to cash out. How much withholding tax I would be paying on a $100K withdrawal? Various sources tell me that other than the province of Quebec, the withholding tax rate is 30% which would be $30K in taxes. Is this correct? or Simply put - What is the minimum withholding tax rate I would be paying at age 71 considering I have zero income
It’s important to note that withholding tax is only temporary and the eventual tax that you pay in the year of withdrawal will depend on your marginal tax rate for that year. In order words, if you withdraw $100,000 and are subject to a 30% withholding tax or $30,000 in tax, once you file your return for the year and assuming this is all your income for the year you will owe around $22,000 (in Ontario) and would receive a refund of $8,000. But to answer your question (outside Quebec) you pay 10% withholding tax on withdrawals up to $5,000, 20% on withdrawals between 5 and 15k and 30% on withdrawals over $15k.
@@AvalonAccounting Thank you for your reply. If I understand correctly the tax rate will depend on the tax bracket I fall into at the "time" of withdrawal. If so, let’s say I have $500K in RRSP and I opt to cash out at age 71, then I would be paying much more than 30% withholding tax now as I would be in a high tax bracket and instead of a refund, I would have a balancing owning to CRA?
Thanks for the video! I've got 2 questions. 1. What's the earliest I can withdraw as a 'retired person' without the heavier early withdrawal tax penalties? What if I retire when I'm younger like 45? 2. What happens if I contribute to the RRSP for the current year (2023) before March 1st? Can I count it towards or 2023 or do all pre-March 1st contributions count towards the previous year since that's the deadline?
Hey Gareth, thanks for your questions! 1. There aren't actually any "tax penalties" for withdrawing funds early. Your RRSP provider will withhold tax from the withdrawal amount the same way that an employer would withhold tax from a pay cheque. You're given credit for this tax paid when you go to file your tax return. If your calculated taxes payable for the year are less than you've already paid, you'll get a refund of that overpayment (same as with employment income and taxes withheld). 2. You can deduct Jan/Feb 2023 RRSP contributions against 2023 income as long as you haven't deducted them on your 2022 tax return.
Great content!!! Thank you for sharing such useful information. I have a question about the RRSP HBP. I bought my first home last year but I didn’t have made any RRSP contribution. But now I do have some money in my RRSP. In this case, can I use the HBP program to make an extra payment against my current mortgage?
Hey Juvenal - I actually don't know the answer to that one. Could be worth a chat with your bank as I imagine they've had that request before. Sorry I couldn't help more! Paul
Hi Nick - great question. In this context, we mean high or low for marginal tax rates and those would be on a sliding scale. The highest being above $220K per year (which pays 53.5% in BC) and lowest being effectively zero tax if you make $15,000 or less. Probably would have been better to have said higher or lower income in this context. If you search up marginal tax rates for your province, you can see that the higher your marginal tax rate, the more you save with RRSP. Hope this helps!
Can you explain the steps needed to fix a rrsp over contribution
This is very interesting and informative. What is not clear is the withholding tax rate at the time of cashing out at age 71? Everybody talks about that at retirement one would most likely be in a much lower income tax bracket and thus pay much less withholding tax when cashing out. Considering a scenario where I would have $100K in my RRSP account at age 71, when I would have to either close my RRSP and cash out or convert to an annuity plan. Let’s say I opt to cash out.
How much withholding tax I would be paying on a $100K withdrawal? Various sources tell me that other than the province of Quebec, the withholding tax rate is 30% which would be $30K in taxes. Is this correct? or Simply put - What is the minimum withholding tax rate I would be paying at age 71 considering I have zero income
It’s important to note that withholding tax is only temporary and the eventual tax that you pay in the year of withdrawal will depend on your marginal tax rate for that year. In order words, if you withdraw $100,000 and are subject to a 30% withholding tax or $30,000 in tax, once you file your return for the year and assuming this is all your income for the year you will owe around $22,000 (in Ontario) and would receive a refund of $8,000.
But to answer your question (outside Quebec) you pay 10% withholding tax on withdrawals up to $5,000, 20% on withdrawals between 5 and 15k and 30% on withdrawals over $15k.
@@AvalonAccounting Thank you for your reply. If I understand correctly the tax rate will depend on the tax bracket I fall into at the "time" of withdrawal. If so, let’s say I have $500K in RRSP and I opt to cash out at age 71, then I would be paying much more than 30% withholding tax now as I would be in a high tax bracket and instead of a refund, I would have a balancing owning to CRA?
Thanks for the video! I've got 2 questions.
1. What's the earliest I can withdraw as a 'retired person' without the heavier early withdrawal tax penalties? What if I retire when I'm younger like 45?
2. What happens if I contribute to the RRSP for the current year (2023) before March 1st? Can I count it towards or 2023 or do all pre-March 1st contributions count towards the previous year since that's the deadline?
Hey Gareth, thanks for your questions!
1. There aren't actually any "tax penalties" for withdrawing funds early. Your RRSP provider will withhold tax from the withdrawal amount the same way that an employer would withhold tax from a pay cheque. You're given credit for this tax paid when you go to file your tax return. If your calculated taxes payable for the year are less than you've already paid, you'll get a refund of that overpayment (same as with employment income and taxes withheld).
2. You can deduct Jan/Feb 2023 RRSP contributions against 2023 income as long as you haven't deducted them on your 2022 tax return.
Great content!!! Thank you for sharing such useful information.
I have a question about the RRSP HBP. I bought my first home last year but I didn’t have made any RRSP contribution. But now I do have some money in my RRSP. In this case, can I use the HBP program to make an extra payment against my current mortgage?
Hey Juvenal - I actually don't know the answer to that one. Could be worth a chat with your bank as I imagine they've had that request before.
Sorry I couldn't help more!
Paul
What is considered high income and low income?
Hi Nick - great question. In this context, we mean high or low for marginal tax rates and those would be on a sliding scale. The highest being above $220K per year (which pays 53.5% in BC) and lowest being effectively zero tax if you make $15,000 or less. Probably would have been better to have said higher or lower income in this context. If you search up marginal tax rates for your province, you can see that the higher your marginal tax rate, the more you save with RRSP. Hope this helps!
Thanks for the clarification! It’s really difficult to make sense of it all honestly