# Withdraw $US from RRSP



## none (Jan 15, 2013)

Hi Everyone,

I had very low income this year (~12K) and I want to pull out about 10K at the end of December from my RRSP and then put it back in on Jan 2nd. This is just for tax reasons as I now have a job that pays ~70K. I have a good chunk of RRSP room so burning 10K of it isn't a big deal. Also, I'm now a government employee so I have a pension so I'll have lots of RRSP room in the future so all in all losing 10K of room isn't a big deal (and also, I'm fan of TFSAs which I plan on stashing the max each year anyway). I just checked my 2013 return, I have 22K of unused contribution room.

So my question is this. I have accounts with TDW and my RRSP is all in US$ funds (the 10K in the US money market one). Is there a way I can trigger the withdraw and put back without getting double burned on exchange? I guess I could just do Norberts Gambit - move CAN$ out and then put back and and redo norberts - it just seems a bit silly.

Can anyone suggest another method? Thanks!

________
Additional tax questions:
1) I see a 10-20% withholding tax will be applied when I take out this $$$. I, of course, will get that back when I file my 2014 tax return correct? (that seems like a no brainer but just so I'm clear on it all).

2) About BC pensions. I think I put in ~6% of my income towards my pension (~$4200 per year) and the government puts in about the same. Does that mean I should get about .12*70K = $8400 in RRSP room per year? This whole pension thing is pretty weird but I also think it could be pretty awesome.

3) In a couch potato setup and considering risk allocation, would this pension component be equivalent to bonds? Or should I just ignore it all and keep the 60-70eq /40-30 Bonds allocation for my RRSP - TFSA.
________________________________________________

I don't own a house and never plan to. I like renting but to make it work I need to save and I plan to (just to get that out of the way).

Thanks for the help CMF!


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## Spudd (Oct 11, 2011)

If you withdraw 10k from your RRSP, you will owe 2k more in tax than if you don't. On earnings of 12k, your tax is only $237 but if you have earnings of $22k, then your tax goes up to $2243. http://www.taxtips.ca/calculators/basic/basic-tax-calculator.htm So, you won't get the withholding tax back when you do your taxes, since you will actually owe 20% tax on the withdrawal. 

Secondly, if you have a government pension, this means you will have much less RRSP room added over the years than the average person who doesn't have a pension. This is due to the pension adjustment - it decreases RRSP room for those with defined benefit pensions. I looked up the BC pension and it is indeed defined benefit. That means the money that you contribute will be invested by them, and upon retirement you will get a certain amount of money per month, calculated based on your years of service and final salary. You can read more on the details in the link provided.

Some say the pension is equivalent to bonds because it is a guaranteed income upon retirement. However, if you go 100% stock then you can't rebalance your portfolio. It's up to you how important you think this is, and how comfortable you feel being 100% stock. You can also consider that you don't know for sure at this point if you will really spend your whole career with this employer.


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## OptsyEagle (Nov 29, 2009)

I am not completely up to speed on BC taxes but in Ontario you would end up owing about 20% taxes on the withdraw you are discussing, when you file your tax return, so I doubt you will see much of the withholding taxes come back to you. I suspect BC taxpayers probably pay pretty close to the same amount, within a percent or two.


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## none (Jan 15, 2013)

Thanks - yes that was a massive bonk on my part. Of COURSE, I wouldn't get it back, withholding tax ~= the true tax. Even steven (BONK).

I guess I don't see RRSP room to be particularly valuable going forward. I'm socking away full pension amounts, plus I'll top up the rest of my yearly RRSP room, PLUS TFSA, PLUS canadian commodities in any non-reg accounts. Sounds like taking advantage of this tax advantage is the way to go ( I think anyway)


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## Spudd (Oct 11, 2011)

I don't see it as a massive tax advantage. Basically you will withdraw 10k, pay 2k in taxes, and put back 8k. Now you only have 8k growing tax-deferred where before, you had 10k tax-deferred. And you've lost 10k in room. 

Yes, upon retirement, assuming you spend your career with the govt, you will have a pension. But things could happen. You could leave the govt for a private sector job, making your pension very small. You could decide to retire at 50 while you're not eligible to take the pension till 60 (or whatever is the actual eligibility age). 

Personally, I would not pursue this withdraw/recontribute route. I feel it's more trouble than it's worth and is more likely to harm your financial future than aid it.


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## Guban (Jul 5, 2011)

@none.
This may be a good plan. I would suggest that you do a 2014 tax return NOW. Your situation is unclear to me, but you may be able to pull out some RRSP money tax free in 2014. $10k is unlikely, but with the Canada employment amount and other tax credits, a withdraw in 2014 may be a good idea. You say that you are a government worker now, will you have a pension deduction off your T4 income? Do you have dividend income and will get a dividend tax credit? Do you have student loans and get a credit there? Charitable donations? Transit credit? Medical credits? Other credits or deductions? Most of these would say that you should pull money out of your RRSP. 

You indicate that you have $22k of unused contribution room. Are you referring to RRSP room or TFSA room? In any case, I would suggest that you don't recontribute money to your RRSP until you max out your TFSA. Contributing to your RRSP in Jan 2015 doesn't make sense while you have TFSA room because it sounds like you won't likely deduct it until your 2015 tax return as you will be in a much higher tax bracket. It is better to out it in your TFSA and then pull it out at the end of 2014 to contributing to your RRSP in Jan 2015. I have written about this strategy previously, and have included a caution about the possibility of a decrease in the value of your investment during this switch time.

As to the currency conversion, will TDW let you withdraw or contribute using a transfer in kind? It is worth asking.


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## none (Jan 15, 2013)

Hi Guban,

I think you are right that it's worth the effort. Basically it's a guaranteed immediate 10% return. I do have a hog load of education tax credits (I've been working on my PhD far too long), my TFSA is maxed out (currently 33K or something, that's where I keep my bonds), and yes, I do give some money to charity (it should be more, only ~$350 per year), no student loans at all. To start off my financial plan I'm going to pull $25K out of my RRSP before the end of the year and then put back 21K (25K minus 20% withholding tax) at the beginning of January.

As above, it's 22K of RRSP room, my TFSA is maxed. 

My financial plan going forward is pretty simple and reasonable (I think but feedback is always good). I think it's important to enjoy life and not live life a pauper - I have a 4 year old and I want to be able to take him skiing, fun trips ect. Plus I'm freshly divorced (blurg) so even at 70K it's not like I'm loaded.

Anyway, my financial plan going forward is this: 
1) pay into my BC gov pension (of course);
2) max out my TFSA every year(5.5K), 
3) Put 4.5K into my RRSP each year;
4) Use RRSP 'refund' from above to put my $1250 share into my sons RESP. 
5) Index fund blah blah boring;


I'm going to see if I can make that work. Honestly, it's a bit financially aggressive but savings are important and I want to make it work. I may have to take on an additional job to do so. Which would really suck but money ain't free.

Thanks for the feedback!


Additional question: I know i can have a % of my paycheck go from work to different accounts. I.e. according to the plan above I plan on having 4500/26= 173.08 & 5500/26 = 211.54 for to my RRSP & TFSA automatically each paycheck going forward (also - fill out the reduce tax at source which will make it easier). Now that the money will go automatically to my TDW RRSP & TFSA accounts can I set up automatic fund buying in these accounts as well? Therefore, I just need to set this up and I'm done? I googled around and even looked at the TD easyweb site and couldn't find the auto buy thing.

Thanks!


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## Eclectic12 (Oct 20, 2010)

none said:


> ... I had very low income this year (~12K) and I want to pull out about 10K at the end of December from my RRSP and then put it back in on Jan 2nd. This is just for tax reasons as I now have a job that pays ~70K.


This may work but depends on some items that are not clear plus also assumes you will chain yourself to the pension for the rest of your career. Then too, it assumes the gov't won't make adjustments to it ... as has been happening for *all* pensions, DB or otherwise.

The first part I'd check is whether your income is really as low as you as ~ $12K.

Dividing a $70K income by 52 weeks, I end up with $1346. With six weeks left in the year, this works out to $8K of income, just from the new job.
When all sources of income are added up, it seems strange that you'd only make $4K for over ten months of the year. It is possible ... it just does not sound right.




none said:


> ... Also, I'm now a government employee so I have a pension so I'll have lots of RRSP room in the future ... I think I put in ~6% of my income towards my pension (~$4200 per year) and the government puts in about the same. Does that mean I should get about .12*70K = $8400 in RRSP room per year? ...


With a DB pension, the loss of RRSP contribution room is a lot larger than a DC pension as the payout out guaranteed ... so your assumption around future RRSP contribution room is suspect.

Assuming a $70K gross income, where the RRSP contribution room calculation uses earned income - not gross. 
You aren't paying income tax on your pension contributions, so just this one factor has cut your earned income to $65,800.
I forget the rest of the factors so let's assume for illustration purposes your earned income works out to $62K.

RRSP contribution room earned = 18% x earned income = .18 x $62K = $11,160, where there is no pension.

You however, participate in a DB pension which reduces the earned RRSP contribution room by the pension adjustment (PA) ... so really the formula is: RRSP contribution room earned = (18% x earned income) - PA

For a DB pension, the PA = ( 9 x the benefit earned ) - $600.
http://www.advisor.ca/retirement/retirement-news/area-52-know-your-pension-adjustments-45085

A lot of DB pensions grant 1.5% of yearly income per year ... likely this is a lot higher in a gov't pension but again, this is for illustration. 
So on $70K, the yearly benefit is = .015 x $70K = $1,050.
So the PA = ( 9 x $1050) - $600 = $8,850.

The end result is the previously calculated RRSP contribution room is reduced by the PA = $11,160 - $8,850 = $2,310 ... which is quite different from the estimated $8,400.


I'd want to be sure of the details before making my plan.




none said:


> ... 1) I see a 10-20% withholding tax will be applied when I take out this $$$. I, of course, will get that back when I file my 2014 tax return correct?


It all depends on what your final income is, what taxes are due and whether the different withholding tax already paid through one's employer plus what was withheld when the RRSP withdrawal was made was too much, just right or too little.


Cheers


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## Eclectic12 (Oct 20, 2010)

I mentioned this at coffee break and one of my co-workers said that he was caught over-estimating his RRSP contribution room two ways.

The first was that his previous employer had a DC pension, which is a $ for $ PA (ex. employee contributes $1, employer contributes $1 = PA $2).
He understood that part but missed that the DC pension had a much lower contribution rate of 1.5% from each for a total contribution of 3%.

The new DC pension had a contribution rate of 5.8% ... which threw off his estimations.

He said if he had no pension, he'd earn just over $19K of RRSP contribution room, if he was still in the DC plan, he have a reduced amount of just over $15K but in his DC plan, he ends up with the reduced amount of just over $4K.


Cheers


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## none (Jan 15, 2013)

Hi Eclectic12,

I just went to our pension office and they didn't have the answer either.... You make some very good points I hadn't considered before. Maybe I should think this through a little better. Thanks for bringing up those points!, i would have missed them without your help.

(I checked, my income for this year will come to the paltry sum of $11,500 - blurg).

Thanks again.


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## none (Jan 15, 2013)

In retrospect I think I may trying to over-optimize things a little. A critical assumption going forward is that I will obtain 5500 a year (or more) in TFSA room. That's not guaranteed of course. As an investor I hope it will continue but also as someone who is interested in a fair society I hop they cap it at 50K or something - anyway, who knows what will happen when the political winds shift. In that case I would need 10K of RRSP contribution room per year which may not be possible to achieve with my pension deductions. Good problem to have really if you think about it.

I think what I'm going to do rather is pull out 12K from my RRSP to make sure I still have 10K of room left and go from there. That should give me room going forward without worrying too much about over contributing going forward.

Thanks for the advice everyone! Cheers!


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## Spudd (Oct 11, 2011)

Another possible thing to consider is low-income tax credits. If your income is only 11k then you might be eligible for some low income tax credits which may disappear if your income becomes 23k. I don't know the thresholds for these things but you should probably run a test tax return using last year's tax software with both scenarios to see the true impact before you decide for sure.


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## Eclectic12 (Oct 20, 2010)

none said:


> ... I think what I'm going to do rather is pull out 12K from my RRSP to make sure I still have 10K of room left and go from there...


I downloaded the BC tax spreadsheet from http://www.peeltech.ca/mytax.shtml.

When an employment income of $11.5K is plugged in, there is a refund of $1305.
Then the $12K RRSP withdrawal with a 20% withholding tax was added, changing it to owing $267.91.

For 2015, an employment income of $70K owes $14,405.62 
As the proceeds from the RRSP are $9,600, this amount was plugged in as an RRSP contribution that when deducted, the taxes owing drops to $11,554.42.


So in exchange for paying an extra $1572.91 in taxes this year, next year (assuming tax rates do not go up) - the numbers work out to $2851.2 refunded next year.


Now likely there are likely some tweaks (ex. education tax credits) but this is what the base numbers appear to work out to.


Cheers


*PS*

The other question worth exploring is whether one can retire early without starting one's DB pension. If so, depending on what one's other sources of income are, one could potentially withdraw controlled amounts from the RRSP where these withdrawals form the bulk of one's income.


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## none (Jan 15, 2013)

That's a good point but I have a high income (soon to be ex) spouse. I assume we're going to do a weird, 'together but separate", tax return this year. It's not going to be much fun.

Quick question, a bit of a tangent from the original Q but:

1) I plan to have xxx per paycheck taken off and automatically go into my TDW accounts (TFSA & RRSP). Can I also set up automatic buys in those accounts so i never have to look at things? I.e $100 goes in from each paycheck, buy $20 of e-series A, $30 e-series B etc? I looked on my TDW account and couldn't see that option. This must be possible, no?

Edit: The numbers above are close to what I had eyeballed. Seems like a good way to make %10 or so right off the bat.

I'm having a bit of a hard time really valuing RRSP room - thanks EC. I currently have about 80K in my RRSP and $33K in TFSA. If I run out of RRSP room I can easily keep my canadian equities in my non-reg accounts which are taxed so favorably that it's not really a TON better than things in your TFSA. With the pension and my future contributions into my RRSP ($4500 a year) I want to keep in mind clawbacks when I retire.


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## Guban (Jul 5, 2011)

@none.
Wow, your tax situation is not straight forward. I hope that you ran a 2014 estimate of your taxes! Be sure to include the child amount and the amount for eligible dependent, if applicable. Spudd also has a great point about your declared income changing the credits for lower income people: HST credits, child tax benefits, any provincial benefits, ...

The preauthorized purchases at TDW are definitely available. They want to make it easy for you to give them your money! See:
http://www.td.com/to-our-customers/tdhelps/#psce|cid=871|lid=1|tid=001|vid=c0120ed48


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## none (Jan 15, 2013)

Indeed, divorce makes taxes confusing - at least going forward. We have/had an accountant and I'm going to have her work things out this year for sure. After that and things are separate things should get easier.

Thanks for the link - I don't know why I couldn't find that.

I think my plan going forward is going to be a 70/30 couch potato where 20% is Canadian equities that are always kept in non-registered accounts. TFSA will always be maxed but RRSP contributions will be used as needed to cover US & international equities. Anyway, I have some math to do.


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## none (Jan 15, 2013)

Here's an update and I was hoping to get some opinions.

So withdrawing US$ from an RRSP into a non-registered account (even with the new TD US$ accounts) is a bit of a nightmare (currency conversion fees and how that works with the withholding tax). I have a different idea I was hoping to get opinions on:

Here's the plan:
1) Deposit $10K CAN$ into my RRSP today;
2) Withdraw the 10K tomorrow - minus the 20% holding tax --> 8K left;
3) Claim the 10K as income for 2014;
4) Do not claim the 10K as RRSP contribution for 2014 but rather carry it forward to 2015. At this time I should get $2970 in a tax refund (I'm moving to 3rd tax bracket. 
5) Therefore I would effectively be 'selling' 10K of RRSP room for ~$970.

That should work right? There isn't any specified period money has to stay in an RRSP is there? I know there is for a spousal but not for your own. Thoughts?

Thanks!

notes: I have a great BC government pension and with the predicted ballooning of TFSA room I don't think i will miss the 'sold' RRSP room.


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## RBull (Jan 20, 2013)

What makes you think you can carry forward an rrsp contribution claim to another year? You can't. 

My suggestion is to forget about all these tricks and concentrate on your new dream job. Good luck.


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## Guban (Jul 5, 2011)

@RBull. I'm not sure why you say that. You can deduct the contribution iin a future tax year.

@none. I am confused. I thought you were just going to pull money out of your RRSP while you income is low. Step 1 does not make sense to me. By putting money in, and then taking it out, you are effectively just destroying RRSP room. I understand you want the future deduction, but why don't you just contribute at a later date, when you want to use the deduction? By taking it out, you are not even sheltering the money and deferring taxation.


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## none (Jan 15, 2013)

The idea is that taking money out and paying 20% tax and then putting it back in to claim the 29.7% tax deduction should be the same as putting money in and claiming at a later date and pulling it out right away and paying the 20% tax. The same thing but backwards, right?

I don't have a ton of cash lying around to just throw money into my RRSP - but I can move some things around to make the upper scenario work.

These things used to be so simple when RRSP was the only game in town but now with TFSA room pouring in RRSP room just isn't all the valuable any more.

Rbull: see : http://business.financialpost.com/2...e-between-an-rrsp-contribution-and-deduction/


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## Eclectic12 (Oct 20, 2010)

^^^^

I can see where it makes planning more complicated but AFAICT the value is a YMMV situation.

For someone who will earn a good DB pension, is making use of a TFSA as well as building a nice investment portfolio, it may not make sense.
For others who have changed jobs a lot resulting in a small pension, being able to contribute to the RRSP today at near the top tax bracket and withdraw in retirement near the bottom tax bracket is valuable.


I say this to remind people to check their personal situation before making what could be a rash decision.

Cheers


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## Guban (Jul 5, 2011)

none said:


> The idea is that taking money out and paying 20% tax and then putting it back in to claim the 29.7% tax deduction should be the same as putting money in and claiming at a later date and pulling it out right away and paying the 20% tax. The same thing but backwards, right?


Ok. I understand. I thought that you were going to be recontributing money into your RRSP in the new year, as per your initial post in this thread. I see that is not what you are planning.


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## none (Jan 15, 2013)

yeah, it seems a bit complicated but effectively 'selling' 10K of RRSP room for $970 seems like an OK deal considering the existence of TFSAs going forward and favourable tax treatment of Canadian securities in unregistered account. Plus accumulating 18% of RRSP room (minus pension adjustments of course) going forward - I just don't think I'll need it.

Seeing that I make ~70K - I can't see me wanting to save more than 70*.18 = $12,600 + $5500 (TFSA) = $18,100 per year. I think that's more than enough, one has to keep in mind that they can get hit by a bus any day (I bike commute to work) and you can't just live for retirement. Plus if TFSA moves up to 10K then it becomes even more of a no-brainer.

I have 20K of unused room, I may just use it all for this move.

I should shoot this to Garth Turner - he loves this kind of thing.

Thanks for all the help!


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## Eclectic12 (Oct 20, 2010)

none said:


> ... Seeing that I make ~70K - I can't see me wanting to save more than 70*.18 = $12,600 + $5500 (TFSA) = $18,100 per year ...
> I have 20K of unused room, I may just use it all for this move...


Is it wise to use all the unused RRSP contribution room up?

Assuming the link Spudd posted upthread is correct, it appears that when you join the DB pension, the benefit is earned at 2% per year.
The $12.6K looks like a reasonable estimate of RRSP room earned from a $70K salary but the recalculated PA from the formula posted upthread is $12K.

The net result = RRSP room earned - PA = $12.6K - $12K = $600.
So unless there are other sources of earned income, the RRSP + TFSA savings is more likely to be $600 + $5500 = $6100 per year.


Have they told you when you join the plan, with it's associated PA?
I found the "as soon as eligible, joining is mandatory" but nothing to indicate when plan membership starts.


Cheers


*PS*

If the $10K TFSA contribution room does come about, then the yearly savings would jump to $10600.


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## none (Jan 15, 2013)

i see what you mean. I am making the assumption that RRSP ==PA (for example) then I am effectively saving 18% of my salary which should be enough savings so I shouldnt worry too much about it. That and committing to saving $5500 per year would be like saving around 26% of my gross salary. I don't know any wonks that suggest that high of a savings rate so I think I'll be good. 

I may just split the difference and just do this for 15K and then I have a bit of breathing room if necessary.


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## none (Jan 15, 2013)

Hmmm... I just did the math and wow my pension is pretty awesome.

Turns out I will only accumulate an additional $400 per year after my pension adjustment has been factored in (similar to estimates above).

Now I'm second guessing everything. Maybe I should just use the RRSP room going forward and skip this RRSP withdraw idea after all.

....... You know, I think with the superior tax protection in RRSPs and also considering that I'm in the camp that thinks that the Canadian economy is a small drop in the bucket and international exposure is likely superior perhaps this RRSP room is worth keeping after all. 

Drat. I hate it when I thought i was being clever and I turn out to be wrong. Oh well, learning is a life long process. Thanks for you insights guys (and gals?).Cheers.


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## PoolAndRapid (Dec 3, 2013)

..


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## none (Jan 15, 2013)

Pool - think you could be right - the $400 does seem to not jive with some people in my office who are still able to contribute a fair amount to their RRSP even after pension adjustment. I've contacted a friend who is on the same pay level as me to get a more real world example. I'm hoping to save 10K a year in addition to my pension - $5500 in TFSA and $4500 in RRSP so I'm not far off and could 'sell' off some of my RRSP room as I talk about above (although I'm starting to reconsider that whole idea). Thanks!


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