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Old 10-13-2017, 12:39 PM
 
Location: Toronto
6,750 posts, read 5,698,052 times
Reputation: 4619

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I just realized I have put a lot of money in a cookie jar almost glued shut !

I am starting to think the government just tricked me it to putting money aside so if I ever do become broke they will say it is not their problem I have retirement savings funds I can cash in !

I did not realize I would be getting charged 40% back in taxes if I needed to use them ?

Are these things really all that useful? I am feeling this is no better then buying gold jewellery ( another money making venture I explored... that seemed to be not such a good idea).

Anyone who bought a good chunk of these retirement savings funds a long time ago happy with their decision or regret it and want to pass on some words of advice.

I literally think a have a glass jar with cookies in front of me.
I thought the cookies were all mine.
Now that I feel like eating a cookie I am being told for every cookie I want to eat the government is going to take a little less then have of my cookie (40%) .. even if I want to eat 1 cookie I really will have to eat 2 because someone is going to taking a huge bite of all my cookies!!!! So the cookies in the jar are a lot less then I though if I actually want to eat some. They are old decorative cookies and not edible ones!!! And who wants decorative cookies???? Just as stupid as fake fruit!




???????????????????????? $ Revenue Canada
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Old 10-13-2017, 01:22 PM
 
35,309 posts, read 52,154,689 times
Reputation: 30999
They are merely tax deferments, you will end up paying the tax eventually .
I got roped into buying a lot of RRSPs when i was younger ,in my 50s i realized i was sitting on a lot of untapped potential that i may never get to spend due to ailing health,i cashed it all in and paid heavy tax penalty but i bought the Harley i'd always dreamed of. bought a new Mazda Miata and bought a nice Grumman fishing boat. lots of good memories.
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Old 10-13-2017, 01:31 PM
 
Location: Montreal -> CT -> MA -> Montreal -> Ottawa
17,330 posts, read 32,944,455 times
Reputation: 28902
RRSPs earn you a good amount of money, depending on how they're invested.

If they're GICs within your RRSP portfolio, it's a known, flat, low amount of interest at GIC maturity. But it's safe. You won't lose anything out of your initial investment... unless you withdraw early.

Mutual funds or other higher-risk investments within your RRSP portfolio can earn you a nice chunk of change. Yes, if you take it out before your retire, you lose a chunk. That's what RRSPs are about. But you can be amassing a lot on top of your initial investment until that time. That's the route that I chose and I'm happy with it. It's scary and stressful sometimes, watching it peak and dip, but right now I'm happy.
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Old 10-13-2017, 03:36 PM
 
Location: Canada
7,668 posts, read 5,477,929 times
Reputation: 8808
I’m surprised they withheld 40%. My financial institution withholds 30%. These are arbitrary percentages. The financial institution has no clue what your income tax bracket is and doesn’t care.

You receive a tax slip from the financial institution. Amount withdrawn from the RRSP will be listed as income on your tax form. The amount withheld from that amount will be listed as a tax credit. If you have overpaid, you will get a tax refund.

So, if you are in a low income bracket you will end up paying a lot less tax on the RRSP withdrawal than you would if are in a high income tax bracket.
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Old 10-13-2017, 04:07 PM
 
Location: Toronto
6,750 posts, read 5,698,052 times
Reputation: 4619
Default ......

Quote:
Originally Posted by jambo101 View Post
They are merely tax deferments, you will end up paying the tax eventually .
I got roped into buying a lot of RRSPs when i was younger ,in my 50s i realized i was sitting on a lot of untapped potential that i may never get to spend due to ailing health,i cashed it all in and paid heavy tax penalty but i bought the Harley i'd always dreamed of. bought a new Mazda Miata and bought a nice Grumman fishing boat. lots of good memories.
I did it because I really need the tax credit and it boiled down to just paying the money in taxes or getting buying the savings funds ... so technically I am not loosing out. I have actually made money on them .... but still...... 40% of a pretty generous cut that they are taking. I got to crazy the "code" of how to better shelter my money legally. Someone out there has the answer !

I need actually start figuring out exactly how much I should try to make to fall just below that 40% tax point.

I literally was going to be cashing in some RSPs to buy something ... but not at a 40% loss... so I get it will go on a lower interest line of credit.

There are so many loop holes to saving money with credit. This I am getting better at.

I don't want to have too much just sitting aound as who knows if I will make it past 65.
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Old 10-13-2017, 04:09 PM
 
Location: Toronto
6,750 posts, read 5,698,052 times
Reputation: 4619
Default ......

Quote:
Originally Posted by DawnMTL View Post
RRSPs earn you a good amount of money, depending on how they're invested.

If they're GICs within your RRSP portfolio, it's a known, flat, low amount of interest at GIC maturity. But it's safe. You won't lose anything out of your initial investment... unless you withdraw early.

Mutual funds or other higher-risk investments within your RRSP portfolio can earn you a nice chunk of change. Yes, if you take it out before your retire, you lose a chunk. That's what RRSPs are about. But you can be amassing a lot on top of your initial investment until that time. That's the route that I chose and I'm happy with it. It's scary and stressful sometimes, watching it peak and dip, but right now I'm happy.
Well I am stuck now ... because I am the queen of trying to get a discount and I am not paying back 40% on taxes on that money because then I would have to cash even more in to pay the taxes lol!
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Old 10-13-2017, 04:12 PM
 
Location: Toronto
6,750 posts, read 5,698,052 times
Reputation: 4619
Quote:
Originally Posted by cdnirene View Post
I’m surprised they withheld 40%. My financial institution withholds 30%. These are arbitrary percentages. The financial institution has no clue what your income tax bracket is and doesn’t care.

You receive a tax slip from the financial institution. Amount withdrawn from the RRSP will be listed as income on your tax form. The amount withheld from that amount will be listed as a tax credit. If you have overpaid, you will get a tax refund.

So, if you are in a low income bracket you will end up paying a lot less tax on the RRSP withdrawal than you would if are in a high income tax bracket.
They know my income and advised based on that. So looks like the lid on the cookie jar is going to say closed as I am not give back 40% of the money ... literally over my dead body !!!! I think technically speaking if you die the person who inherts them does not need to pay taxes on the money lol. Maybe that is infact the best way to get the most out of your RSPs !
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Old 10-13-2017, 07:18 PM
 
Location: Montreal -> CT -> MA -> Montreal -> Ottawa
17,330 posts, read 32,944,455 times
Reputation: 28902
Quote:
Originally Posted by cdnirene View Post
I’m surprised they withheld 40%. My financial institution withholds 30%.
That's right that they withhold 30%. The financial institution withholds as follows:

Up to $5,000: 10% withheld; Quebec is 21%
$5001 to $15,000: 20% withheld; Quebec is 26%
$15,000 and up: 30% withheld; Quebec is 31%

However, the amount that you withdraw is considered taxable income, so you'll pay more taxes -- on top of the 30% already withheld -- when you file your return for that year.

The only way to pay less than that is to move out of the country. As a non-resident, the amount withheld is a flat 25%, based on a lump-sum one-time withdrawal. I did that when I moved to the States because my RRSPs were tied up in mutual funds. Being a non-resident, I was not allowed to make trades (i.e. move my money from one fund to another), so my choices were to cash out or let my money sit in the funds that they were in, which could have been a financial disaster. The exchange rate at that time worked in my favor (it was basically at par), so I cashed out, exchanged it all to USD, and everything was lovely (except for that 25% loss -- but the mutual funds worried me more). When I moved back to Canada and wanted to build up my RRSPs again, I was entitled to contribute for all the years that I was a non-resident, since I was still a Canadian citizen, so that worked in my favor too from a tax perspective, especially since when I exchanged my USD to CAD, the U.S. dollar was much stronger than the Canadian one and I got my 25% back and then some.

This calculator is very good:

https://www.investingforme.com/finan...-tax-estimator

If I were to early-withdraw $10,000 from my RRSP, my "Income Tax Rate Charged on Withdrawal" would be 51.97%. I'd have to be crazy or desperate.
If I were to early-withdraw $100,000 from my RRSP, my "Income Tax Rate Charged on Withdrawal" would be 53.30%. I'd have to be insane.

Last edited by DawnMTL; 10-13-2017 at 07:37 PM..
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Old 10-14-2017, 02:11 PM
 
Location: Toronto
6,750 posts, read 5,698,052 times
Reputation: 4619
Default ....... the

Quote:
Originally Posted by DawnMTL View Post
That's right that they withhold 30%. The financial institution withholds as follows:

Up to $5,000: 10% withheld; Quebec is 21%
$5001 to $15,000: 20% withheld; Quebec is 26%
$15,000 and up: 30% withheld; Quebec is 31%

However, the amount that you withdraw is considered taxable income, so you'll pay more taxes -- on top of the 30% already withheld -- when you file your return for that year.

The only way to pay less than that is to move out of the country. As a non-resident, the amount withheld is a flat 25%, based on a lump-sum one-time withdrawal. I did that when I moved to the States because my RRSPs were tied up in mutual funds. Being a non-resident, I was not allowed to make trades (i.e. move my money from one fund to another), so my choices were to cash out or let my money sit in the funds that they were in, which could have been a financial disaster. The exchange rate at that time worked in my favor (it was basically at par), so I cashed out, exchanged it all to USD, and everything was lovely (except for that 25% loss -- but the mutual funds worried me more). When I moved back to Canada and wanted to build up my RRSPs again, I was entitled to contribute for all the years that I was a non-resident, since I was still a Canadian citizen, so that worked in my favor too from a tax perspective, especially since when I exchanged my USD to CAD, the U.S. dollar was much stronger than the Canadian one and I got my 25% back and then some.

This calculator is very good:

https://www.investingforme.com/finan...-tax-estimator

If I were to early-withdraw $10,000 from my RRSP, my "Income Tax Rate Charged on Withdrawal" would be 51.97%. I'd have to be crazy or desperate.
If I were to early-withdraw $100,000 from my RRSP, my "Income Tax Rate Charged on Withdrawal" would be 53.30%. I'd have to be insane.
That sucks lol!
The slogan for anyone thinking they cash just withdraw their shaving should be "You are poorer then you think".
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Old 10-14-2017, 02:45 PM
 
Location: Montreal -> CT -> MA -> Montreal -> Ottawa
17,330 posts, read 32,944,455 times
Reputation: 28902
Quote:
Originally Posted by klmrocks View Post
That sucks lol!
The slogan for anyone thinking they cash just withdraw their shaving should be "You are poorer then you think".
Although there are sometimes circumstances that are out of your control (and, yeah, those most definitely suck), the point of RRSPs is to amass wealth until you're 65 years old.

The lowest tax rate situation is to wait until you're 71, when RRSPs *must* be converted to RRIFs or annuities. Here's a good (albeit 4-year-old) article explaining that:
When to begin cashing in your RRSP | Deanne Gage | RRSP Investing | Morningstar

RRSPs are the worst investments to dip into before you're 65. The government gave you a tax advantage with it (an RRSP essentially reduces the income that you're reporting on your tax return, so your taxes are lower on that return), so it makes sense that if you then turn around and withdraw from it, the government will want its money back.

KLM, I assume that you also have a TFSA (tax-free savings account). If you need to withdraw some extra funds, do it from your TFSA. Leave your RRSP unmolested; let it grow. Your TFSA can also increase your wealth, depending on what kind of portfolio it's in, but since the amount that you can contribute to it is low, it's not going to be a huge fountain of wealth.

Also, and this is what you'll like (see sentence in bold):

Quote:
A TFSA is not designed specifically for retirement, but to help you save money for a wide range of goals. The amount you can contribute is not based on your income and your contributions are not tax-deductible. You can withdraw your money any time you want it, and you don't pay tax on those withdrawals.
Here are the rules for making and withdrawing from your TFSA:
https://www.canada.ca/en/revenue-age...ls-a-tfsa.html

I'm not a financial advisor, but I learned a lot from mine. If you don't already have one, KLM, get one. They can help you a lot... and there's no charge for having a sit-down with them at your bank.

Last edited by DawnMTL; 10-14-2017 at 03:21 PM..
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