# Early RRSP Withdrawals



## badgerb0b (Mar 31, 2013)

My wife, daughter and I are thinking of taking 3 or so years off to cruise around the Caribbean on a sail boat. To fund this little adventure we are going to use our non registered dividend income of $12,000/yr and the rest will be taken out of our RRSP's for a total of $34,000/yr. After the 3 year hiatus we will return to work and top up the missing RRSP income. 

I am trying to figure out how much taxes we will have to pay per year.

My yearly income will be
$12,000(dividends) + $5000(RRSP) = $17,000

My wifes yearly income
= $17,000 (RRSP)


If I understand correctly according to http://www.taxtips.ca/taxrates/ab.htm we will pay 0% tax up to the federal income level of $11,038 and then 10% tax up to the AB personal amount of $17,593?

Can someone knowledgeable about taxes tell me how much taxes we will each have to pay on $17,000/yr?


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## Eclectic12 (Oct 20, 2010)

^^^^

If you are comfortable with spreadsheets, why not download the AB version of the My Tax 2012 spreadsheet and find out?
http://www.peeltech.ca/mytax/register2012.html

Or if you don't have a tax program you are using, you could download/install the 2012 version of StudioTax.
http://www.studiotax.com/en/?page=2



Cheers


*P.S.*

Don't forget that the early RRSP withdrawal looks like it will subject to withholding taxes that will reduce the cash available to you. 

This will eventually be balanced out when your final income is confirmed when that year's tax return is filed. This means that where the amount withheld was too little, there will be a tax bill, where it was too much, there will be a refund and if it's "just right", there will be no tax bill.

http://www.theglobeandmail.com/glob...o-i-take-money-out-of-my-rrsp/article4085021/
http://canadianfinanceblog.com/withholding-tax-on-rrsp-withdrawals/

If you are prepared to handle the tax bill as late as April 30th when the tax return is due, you might consider withdrawing smaller amounts, less frequently to reduce the amount of withholding tax.


Cheers


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## FrugalTrader (Oct 13, 2008)

Best bet would be to punch your numbers into a tax calculator.

http://www.taxtips.ca/calculators/taxcalculator.htm


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## Charlie (May 20, 2011)

Assuming these are Canadian dividends....

Using the calculator linked by FT, you'd owe nothing as dividends can transfer to a spouse if it increases the spousal claim. (without this election you'd owe less then $900). You would be subject to withholding on RRSP withdraws, which you'll recover on filing.

Happy sailing!


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## badgerb0b (Mar 31, 2013)

I quickly played around with the tax tip calculator and it appears that RRSP income under $11,038 each is the key to pay no taxes. I can plan for the minimum 5% withholding tax and receive a refund in April.

Also, there is no tax what so ever on the dividends which feels to good to be true. I think I will stock up on more dividend payers while they are down


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## OptsyEagle (Nov 29, 2009)

badgerb0b said:


> Also, there is no tax what so ever on the dividends which feels to good to be true.


That is because your corporations already paid your taxes for you.


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## jcgd (Oct 30, 2011)

Just making sure you know you lose the contribution room on the withdrawals.


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## FrugalTrader (Oct 13, 2008)

Have you considered withdrawing from your TFSA before withdrawing from your RRSP? At least with the TFSA, you don't lose the contribution room from the withdrawals.


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## Eclectic12 (Oct 20, 2010)

OptsyEagle said:


> badgerb0b said:
> 
> 
> > Also, there is no tax what so ever on the dividends which feels to good to be true.
> ...


 ... which is a round about way of saying the "no tax" is really avoiding both the corporation paying the dividend paying taxes & the investing paying taxes again (i.e. double taxation).

So don't feel bad for the gov't - they are still getting their taxes, just not from your tax return :biggrin:


Cheers


*P.S.*

+1 on using the TFSA first. 

As FrugalTrader points out - the RRSP withdrawal destroys contribution room (i.e. you have to make more income to earn more RRSP contribution room to put the money back) whereas the TFSA grants the withdrawal amount back the following year as TFSA contribution room.

Plus the TFSA withdrawal is not income and won't generate any income taxes.


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## badgerb0b (Mar 31, 2013)

We are looking at a early retirement sort of thing where we can simplify and do some travelling then come back work a couple years then take off again.

My plan is to limit our income through out the years and pay less tax and therefore have more money to live off. I am not really a fan of RRSP's and just put money in them for the tax deduction with the idea of taking out the smallest amount per year so we will not have to pay any tax on the withdrawals. 

I am only 40 so the idea is to use up the RRSP before OAS and CPP kick in then live off non registered Can dividends and TFSA there after. And no I am not relying on OAS and CPP to be there in 20 years, so if it is that is a bonus.


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## Eclectic12 (Oct 20, 2010)

badgerb0b said:


> We are looking at a early retirement sort of thing where we can simplify and do some travelling then come back work a couple years then take off again.
> 
> My plan is to limit our income through out the years and pay less tax and therefore have more money to live off.


It sounds like you've considered your options and made a decision that suits you. Congratulations!




badgerb0b said:


> I am not really a fan of RRSP's and just put money in them for the tax deduction with the idea of taking out the smallest amount per year so we will not have to pay any tax on the withdrawals ...


Hmmmm ... being able to do what you are doing would make me a fan of them .... :biggrin:


Cheers


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## kcowan (Jul 1, 2010)

Eclectic12 said:


> ... being able to do what you are doing would make me a fan of them .... :biggrin:


Agreed. He can treat it as a paid sabbatical fund. That is what early meltdown is all about, financed by the GOC.


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## My Own Advisor (Sep 24, 2012)

You should like me Badgerb0b, except I'm still working... 

My plan is to invest in RRSPs where I have to now since for early retirement, I will need to collapse them.

I am approaching 40 so like you, use up all RRSPs before OAS and CPP kick in. Live off non-registered CDN dividends and TFSA holdings (stocks and ETFs) for rest of life. I should have a pension, so that will be my bond component starting age 55.

I am not relying on OAS or CCP, so if I get some, that is a bonus.


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