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Most Tax Efficient way to withdraw during retirement

3K views 11 replies 8 participants last post by  Eclectic12 
#1 ·
I have just retired and have investments in RRSP/RRIF, TFSA and Non-registered accounts. What would be the most efficient way to withdraw funds during retirement?

Thanks.
 
#2 ·
I think the main thing is you have to know what your marginal tax rate is and do RRSP withdrawals such that it doesn't push you into a higher tax bracket - unless you really want the money that is.
Try to have dividend income as much as possible in non-reg accounts due to the dividend tax credit.
 
#4 ·
You say RRSP/RRIF. Does that mean you have already converted part of RRSP to RRIF so that you get the $2000 pension credit? That is usually the first thing to do at 65. The amount to convert depends on what other taxable income you have. It's not a bad idea to withdraw enough from RRIF between 65 and 71 so that you stay in a low or mid tax bracket. Once you are 71, you have to draw the minimum required and this can put you in higher bracket IF you have sizeable RRSP/RRIF.
Another thing, is to have dividend payers in your taxable accounts and interest payers in your registered accounts.

It's useful to use a free tax program **** Studio Tax or Taxfreeway. Try various scenarios and see what works for you.
 
#5 ·
The answer to this question totally depends on your particular circumstances, but the way I see it, the main thing is to try to keep your (and your spouse’s) taxable income as level as possible from year to year over your entire retirement.

To do this requires some planning and preparation to set yourself up for an even and balanced flow of income between RRSPs, company pensions (if applicable), CPP and OAS for you and your spouse from year to year.

Many people think it’s always best to defer withdrawal of your RRSPs as long as possible, but if you’re retiring early, then you have an opportunity during the early years of retirement before other pensions kick in to withdraw a pretty sizeable chunk of your RRSPs at a lower tax rate. If you don’t spend it all, then shovel the excess into your TFSA, or your non-registered investments, gift it to your kids, or donate to charity. If you wait until 71 when you have to convert to a RRIF and must make withdrawals, then your RRSP income will be added to all of your other pension income, and this will likely push you into a higher tax bracket.

Probably the biggest tax inefficiency related to RRSPs though is dying with a huge RRSP/RRIF. Apart from missing out on enjoying that cash while you're still alive, whatever you leave behind all counts as income in that final year, leaving a potentially huge tax liability to your estate.
 
#7 ·
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