# RRSP and TFSA account taxation?



## NSVet (Dec 13, 2014)

Hello. I keep reading about all this book keeping about ACB, capital gains, etc and how they will affect you down the road come withdrawal time. I'm going to draw up a scenario with the hope that it might clarify some unknowns I have.


Lets say I invest $200,000 over a number of years and after 35 years it grows to $500,000, all done within an RRSP. Lets say I invested in Cdn REIT's, stocks, 
ETF's and used the dividends through the accumulation phase to buy more units and some of the dividends as cash in the RRSP account as well as capital appreciation over the years. Now say I am 65 years old and I want to start withdrawing some of that $500,000 over the next 25 years to life's end. For example sake, say this is the only income I have and I withdrawal $1500/month. When I am withdrawing that money would it just be taxed as though it was money I made at a job at the marginal tax rate at the time? So would it just be like I would pay income tax on the annual $18,000 that was withdrawn? Or do I then need to go back and look at all the ACB's, dividends, DRIP's etc and be taxed differently on the $1500 monthly withdrawals? Am I missing something, surely it can't be that complicated. Am I confused because I'm reading about taxable accounts vs registered accounts like RRSP's and TFSA's?? If so, maybe I'll just keep my money in the bank LOL. Same scenario with the TFSA? 

Thanks.


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## Spudd (Oct 11, 2011)

You don't need to worry about any of that tracking in an RRSP or TFSA. That's only needed for unregistered (taxable) accounts.


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## NSVet (Dec 13, 2014)

Thanks Spudd, whew that is great news. Appreciate it very much. Have yourself a great day.


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## OnlyMyOpinion (Sep 1, 2013)

And with regard to your question about taxation. Yes, your RRSP or RRIF withdrawl will be considered income and be taxed at your marginal rate at that time. But of course your original contribution allowed you to reduce your taxes payable at the time.
TSFA withdrawls do not impact your income.


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## NSVet (Dec 13, 2014)

Thanks OnlyMyOpinion. Appreciate your answer.


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## Eclectic12 (Oct 20, 2010)

OnlyMyOpinion said:


> NSVet said:
> 
> 
> > ... For example sake, say this is the only income I have and I withdrawal $1500/month.
> ...


True ... though it's probably worth pointing out that this is the final state, after one's tax return has been filed to determine final income levels.

Where the $1.5K withdrawal is a straight RRSP withdrawal, at minimum 10% is going to be withheld to pay taxes (similar to an employer withholding taxes). When the tax return for that tax year is filed - depending on how it all adds up, one may owe more income tax, one may owe nothing or one may get a refund.

If it's a RRIF withdrawal, the numbers will vary as the minimum withdrawal amount won't have a taxes withheld (which risks an end of the year tax bill) but anything above this amount will.

http://www.taxtips.ca/rrsp/withholdingtax.htm


I have also read posts saying some financial institutions will stick to the 10% as each of the once a month is under the $5K amount for a 20% rate but that other financial institutions will switch to 20% as soon as the total amount withdrawn hits the $5K mark.


Finally, for such a small withdrawal amount ... one's RRSP/RRIF account fees may be critical as well. It would suck to expect to spend $1500 and then have $150 withheld for taxes and another $150 be taken by the financial institution under the banner of "RRSP withdrawal fee" to end up with $1200 to spend.


Cheers


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## NSVet (Dec 13, 2014)

Eclectic12 said:


> True ... though it's probably worth pointing out that this is the final state, after one's tax return has been filed to determine final income levels.
> 
> Where the $1.5K withdrawal is a straight RRSP withdrawal, at minimum 10% is going to be withheld to pay taxes (similar to an employer withholding taxes). When the tax return for that tax year is filed - depending on how it all adds up, one may owe more income tax, one may owe nothing or one may get a refund.
> 
> ...



Thanks for your reply. Appreciate your time. Not so concerned with the withdrawals being taxed at marginal rate but more so the possible complexity of keeping track of all the ACB's, dividends, DRIP's etc inside the RRSP/TFSA throughout its growth and subsequent withdrawal phase. Those are fictitious values I used just for the example.


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## Eclectic12 (Oct 20, 2010)

No worries ... though as I say, it is likely to not be as simple as "withdraw $1500, have the full $1500 to spend".

As for the tax implications ... I'd suggest learning at your own pace. 
I'm not aware of many people who choose to avoid taxable accounts completely. Consider also that anything withdrawn that is not spent, has to go somewhere. A young person with a large TFSA allotment might be able to transfer to that but I suspect that won't be everyone.

Bear in mind that when one has never done it and looks at the range of what's needed - it can be intimidating. When one has taken the time to learn it and has been keeping on top of it, IMO it is not that much more difficult than balancing a cheque book.

Where one ignores the cheque book for twenty years and then tries to balance it - it will be a pain. Where one updates it monthly - it's a small regular monthly task.


Cheers


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