# RRSP early withdrawal



## ekmols (Oct 15, 2013)

I am in a situation where I am utterly confused. The advisor I deal with at the bank provided no insight into my problem as he is unequipped to provide any real guidance for me. I am a couch potato investor and have had little need for any more financial help other than what I get from Money Sense.

I am 57 years old and have a taxable income of $0, as I have been unable to find suitable employment and EI has run out . My wife is 56 and was just laid off from BlackBerry,

She was lucky enough to find another well paid position quickly, but as a result of the severance package and continued employment, she will have a income this year of about $120,000.00. We were able to roll over $18,000 of her severance into her RRSP. Her new income is $80,000.00 per year. 

She has $62,000.00 in RRSP room, I have $85,000.00 . I have $470.000 in my RRSP, and she now has $466,000.00. No pensions. 

We have two properties, a home and a cottage, both worth about $350,000.00 each. In about two years we plan to sell the home and move to the cottage. 

Questions
1. Should I leave my rrsp alone and let her claim me as a dependent?

2. Should I make a withdrawal from my RRSP?

3. If so, how much, $10,000 tax free or $37,000 and pay the 20% tax

4. Should I take any income from my RRSP and stick it in her plan to reduce her income tax bill

5. Should I save the RRSP room and use when we sell one property?

6. Will the $18,000.00 roll over count against her RRSP contribution room?


Any help or insight would be greatly appreciated.


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## Guban (Jul 5, 2011)

ekmols said:


> 1. Should I leave my rrsp alone and let her claim me as a dependent?
> 
> 2. Should I make a withdrawal from my RRSP?
> 
> ...


You haven't mentioned what you would do with the money that could be taken out of the RRSP, so I assume that you don't have any immediate need for it. In this event, note that your wife can dump a large amount of the severence money not needed for daily expenses into her RRSP, but not claim it all at once. Also, you haven't mentioned your TFSA's, and that should likely be a big part of your investment portfolio (assuming that you and your wife are not US citizens).

1 and 2. Your choice, but you should think about the long term. It may be wise to take some money out now at a low rate, and put it into TFSA's. Based on your $37k comment, I'm guessing you're from Ontario, but in terms of the family tax paid, removing $10k from your RRSP or not would leave a similar overall tax bill based on lowering the spousal claim. 

3. If you don't have your TFSAs fully funded, you may wish to take out up to the 2nd tax bracket, if your long term plans mean that you'll have to have some of it taxed when it comes out anyways.

4. It sounds like your wife will have money from the severence package to put into her RRSP, and that may be a good thing to do to lower her tax bill.

5. Not sure how much of a capital gain you'll have. You may wish to use the principal residence exemption when you sell your home, or save that for the cottage depending on the appreciation of each property.

6. No, it won't.

Glad to hear that your wife was able to find a job quickly. Lots of us are rooting for Blackberry, but fewer of us are buying them!


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## warp (Sep 4, 2010)

May I suggest that you pay a bit and talk to an accountant?

The people at the bank are usually useless at investment advice, let alont these kinds of issues and questions you have,

The answer given to question 6 may be wrong....the part of her severance put into her RRSP may indeed count against her contribution room, though I am not sure....better check first before doing anything.


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## Guban (Jul 5, 2011)

warp said:


> May I suggest that you pay a bit and talk to an accountant?
> 
> The people at the bank are usually useless at investment advice, let alont these kinds of issues and questions you have,
> 
> The answer given to question 6 may be wrong....the part of her severance put into her RRSP may indeed count against her contribution room, though I am not sure....better check first before doing anything.


Look at
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/trnsfrrng/lgbl-eng.html
Take a close look at the note section!

I will agree that independent advice from an accountant may be helpful, however. Not everything posted by everybody will be correct!


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## MrMatt (Dec 21, 2011)

Or talk to a fee only financial planner. I advised an older couple to do this when they were offered an early retirement offer.

It worked out exceedingly well for them, in the one hour consultation they got a great picture where they stood and what the impact of the choices were.


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## lonewolf (Jun 12, 2012)

I would take @ least the max amount of money out of RRSP before taxes are paid.

Are you going to be getting a pension when you get older ? A pension will put you into a higher tax bracket when you are forced to withdraw money from your RRSP.


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## My Own Advisor (Sep 24, 2012)

Well, I second the great advice of talking to a fee-only planner but I will take a stab at a few things as an amateur...

Congrats on the healthy RRSPs by the way. 

1. Should I leave my rrsp alone and let her claim me as a dependent? Yes, if no income: 
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/303/

This way you can keep your RRSP intact for longer, or, as long as you can.

2. Should I make a withdrawal from my RRSP? No, not yet. See #1.
If you need to make RRSP withdrawals, make them small, due to withholding taxes:
http://www.taxtips.ca/rrsp/withholdingtax.htm

As you wish, use RRSP withdrawals for living expenses or if you can, put some in TFSAs and get those built-up for tax-free withdrawals from income producing investments. In the coming years, say 5-10, most Canadians, if they have maxed-out their TFSAs with "reasonable" investments their TFSAs per couple should be close to or over $100,000. Yielding 4%, those accounts could spin off a few hundred dollars per month tax-free. 

3. If so, how much, $10,000 tax free or $37,000 and pay the 20% tax? See above, small withdrawals.

4. Should I take any income from my RRSP and stick it in her plan to reduce her income tax bill. 
I would take whatever you can from her severance and put that into her RRSP to lower her taxes.

5. Should I save the RRSP room and use when we sell one property? Yes and no...hard to say, since it's in the future and lots can change even in two years. I would keep capital gains associated with cottage though. One option from primary residence sale is to put money received to max out TFSAs, get your tax-free income machine going, and the rest in non-registered, tax-efficient CDN ETFs. Second option, put money into RRSPs, but you're going to draw those down eventually... Lots to consider here so you'd have to run the numbers with a pro. Even $200,000 in non-registered account, all in XIU, would give you tax-efficient income close to $6,000 per year since most of XIU holdings pay dividends. 

6. Will the $18,000.00 roll over count against her RRSP contribution room?
I don't think so, but not a pro. 
https://www.investorsedge.cibc.com/...cs/retirement/rrsps-for-mature-investors.html

http://retirehappy.ca/dealing-with-your-severance-allowance/

Lots to consider but good on you to start thinking it all through.


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## ekmols (Oct 15, 2013)

*great help-added more backround*

Thanks for all the great ideas, I thought I would supply a bit more information that I missed on my last post to make the advice more personal. I have confirmed the severance roll over does not effect her contribution room

We each have about $18,000.00 in TFSA's, I have not been contributing every year as I know I will have lots of cash I will need to shelter when we sell the house. I also have $20,000. in an emergency saving account. We do not have any extra cash from the severance as it was taxed heavily and needed for expenses while no one was working. We are in Ontario, and I believe my wife will be in the 37% marginal tax rate, while I could be a dependant or in the 20% Marginal rate, depending on what I withdrawl from my RRSP. 

I was thinking of taking $37,000.00 from my RRSP and putting $30,000.00 into hers, that should mean I pay 20% tax and she saves 37%. While her income pays the daily bills, it would be nice to have a little extra, ( I could use a set of Snow tires, and she really wants a trip to her friends wedding).

Question is, when I am only a couple of years away from retirement, and should I be trying to get money out of RRSP at 0 tax or 20% or spend TFSA money and then replace it later when the house sells. Or should I concentrate on lowering her tax bill.

Waiting to read all comments, they are very helpful.

thanks


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