# RRSP Dilemma



## Oiler1 (Aug 2, 2012)

Hi Everyone,

I have a dilemma. Due to an inheritance I am going to make more money when I retire.

What should I do with my RRSP at the moment? I stopped contributing the last few years.

It’s nice to have money, but not if I am taxed out be the government.

I am sort of semi-retired now and I make a modest income on investment stocks. I have no debts.

If I take out some of m RRSP (in kind or cash), I will be taxed at 100 percent. I don’t really need the money urgently, but what (legal) strategy can I use to take it out without losing too much in tax?


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## Cal (Jun 17, 2009)

Not sure how comfortable you would be with this suggestion, I guess it depends on how your cash flow is too, but you could get an investment loan, to offset some of your tax hit upon withdrawing money from your RRSP and purchase the same equities that you were already holding.


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## Daniel A. (Mar 20, 2011)

RRSP withdrawals are taxed at your personal rate no getting around that.
One of two things either find the province with the lowest tax rate or draw down as much as you can without hitting the next tax bracket.


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## heyjude (May 16, 2009)

Having "too much" money is a nice dilemma to have! 

Presumably your inheritance will be in non-tax sheltered accounts so you will pay interest on income, dividends and realized capital gains earned, but you can take money out without incurring taxes. Your RRSP is tax sheltered but the payback is that when you withdraw, it will be taxed as income. On the one hand, you want to defer paying that tax as long as possible, but on the other hand, the larger your RRSP, the higher will be the minimum withdrawals after age 71, and the higher will be the tax liability. 

It seems to me that the issue of when to withdraw from the RRSP will occur irrespective of the presence of the inheritance. When you fully retire, if you do not have a pension, or if your pension does not meet your expenses, it may make sense to begin withdrawing (income) from the RRSP, taking just enough to avoid entering a higher tax bracket. That way, you will pay a low tax rate, and later on there will be less money in the RRSP subject to mandatory withdrawals. Any additional needs can be taken from your non-tax-sheltered portfolio. When you do have to take mandatory minimum withdrawals from your RRSP, any excess should be invested in a TFSA. 

The next question is now to invest the inheritance. In order of priority, I would
1. Use it to pay off any non-tax-deductible debt
2. Invest it in a portfolio of (eligible) dividend producing equities (which I would buy on a discount brokerage, avoiding ongoing fees)


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