# Turing on the cash taps in retirement



## My Own Advisor (Sep 24, 2012)

https://www.theglobeandmail.com/glo...s-at-retirement-is-a-science/article35461350/

Interesting advice...

_Juggling multiple sources of income while minimizing taxes is also the goal of Sterling Rempel, a certified financial planner with Future Values Estate & Financial Planning in Calgary.

Mr. Rempel likens retirement saving and withdrawals to an hourglass: You fill the hourglass in your working years and upend it in retirement, and hope the “sand” doesn’t run out before you do.

In his hourglass analogy, the base of savings is composed of registered programs such as RRSPs and spousal RRSPs followed by tax-free savings accounts (TFSAs) and non-registered savings that can include permanent life insurance.

When it comes time to upend the hourglass, he recommends clients draw down the non-registered savings first, then the TFSA holdings and finally the registered RRSP/RRIF plans. “The thought is we are going to hold on to those RRSPs and RRIFs as long as we can so that we can maximize those tax deferrals.”

In the end, however, you can’t beat death and taxes. At death, those tax-deferred savings “fall out of the hourglass all at once” and will be fully taxed, he observes.

Dan Hallett, a vice-president with HighView Financial Group in Oakville, Ont., agrees with the strategy to push the inevitable tax on RRSP/RRIF withdrawals “as far out in time as possible.”_

I'd be curious to know if our savvy CMFers agree with this approach?

What not use up tax inefficient money first (RRSPs/RRIFs), then tax efficient money (non-reg. dividends), then tax-free money (TFSA + principle residence)?

This approach would also work better for estate planning?

I would think this conventional advice is generally wrong. Conventional advice rightly recognizes the tax sheltering advantages of keeping money in RRSPs/RRIFs but our current progressive tax system taxes higher incomes at much higher rates; withdrawals are forced higher; that can create a big tax hit down the road when seniors potentially relying on only CPP and OAS in their later years - which is also not tax efficient income. What if a spouse dies early? Then the surviving spouse is now also hit with higher RRIF withdrawals.

Thoughts?


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## humble_pie (Jun 7, 2009)

^^


i think you're onto something. The TFSA should be held to the last imho. The last big 100% tax-free benefit, to be held in case there's a sudden emergency need, or a sudden tax-free distribution into an estate.

you say mr rempel is fond of "maximizing those [RRSP/RRIF] tax deferrals?" 

hey, much better are the zero-tax opportunities in TFSA, let's maximize those


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## Jaberwock (Aug 22, 2012)

Definitely keep the TFSA, and keep contributing the maximum each year.

Be careful with RRIF. If you let the value build too high you may be pushed into a high tax bracket by the statutory minimum withdrawals. Your estate could also be hit with a whopping tax if you die early. I started drawing down my RRIF at 65 to take advantage of income splitting.

Everyone's situation is different.


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## OnlyMyOpinion (Sep 1, 2013)

The comments section should be required reading as part of the article. The article begins by saying, “...everyone’s situation is different.” Then proceeds to discuss only the conventional way of 'turning on the taps' for retirement income. 

Perhaps the conventional route is the safest for most people, even if it is not necessarily the most efficient. 
In other words, as mentioned in the article, if you can get to age 71 without touching your RRSP, you now have a better chance of getting the rest of the way without having to dip into the cat's food dish? 

Everyone's takeaway should be - consider your own personal circumstances and the various ways you can draw your retirement income and decide on that basis before you begin retirement.

In our case, we're more conventional. Our early cpp and non-reg dividend income pays the bills (age 58-71), so we chose not to add rrsp/rrif withdrawls to the mix (outside of taking advantage of the $2k pension credit from age 65). The non-reg will be all used up by 71 (including annually crystalizing cap gains and significant while-we're-alive gifting), after which the rrif will take over (and feed the tsfa). Once the last of us dies and any remaining rrif/tsfa value enters the estate, we'll let the gov't take their pound. The house remains as an uncounted additional asset.


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## agent99 (Sep 11, 2013)

Once you get to 71, you have to withdraw part of your RRIF. As Jaberwock said, this can be a significant amount if your RRIF has grown. The withdrawal is taxed as regular income. Like Jabberwock, we drew down part of our RRSPs by converting part to RRIFs early. But just withdrew enough so we stayed in a mid tax bracket. Only slowed RRIF growth a little. 

We live day to day mainly off dividends from our unregistered accounts. Every January, we withdraw the required minimum from our RRIFs. We use this to add to our TFSAs and to put some money aside for annual taxes (income and property). Excess is invested in taxable accounts. But since, min withdrawal rate was reduced, there is not as much excess. 

I have seen same thing suggested by several advisers, including our own brokerage when we had one. It must be something they get taught, but in practice you just do what you have to do!


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## AltaRed (Jun 8, 2009)

I's suggest everyone's situation will be......well situational. In my view dependent on one's income level, marginal tax bracket and associated OAS clawbacks. The key should be to minimize the present worth of tax (including clawback) impacts. Thus a balancing act that could be different depending on the proportion of net worth one has in non-reg vs TFSA vs RRIF. Also recognizing Ottawa could change the rules at any time and throw best laid plans out the window.

In my case, non-reg overwhelms my registered accounts, so I will minimize my RRIF withdrawals when they start in a few years (to minimize 'Other Income') and never likely touch my TFSA (a legacy). 

P.S. To Jaberwock - So would a ton of unrealized cap gains in a non-reg account be subject to a whopping tax bill.


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## Nerd Investor (Nov 3, 2015)

It really does depend entirely on your the size of your portfolio, the breakdown between Registered and Non-registered, and any other sources of income in retirement. I think if you were trying your best craft a general rule, what they are saying isn't bad, but I'd add an additional first step/addendum: 

1st step: tactically withdraw money from registered assets to the extent you can keep yourself in a relatively low tax bracket*
2nd step: Then draw additional funds required from your non-registered account (spending the income first)
3rd step: Then draw additional funds required from your TFSA
4th step: Then draw additional funds required from your RRSP/RRIF

*how much you're pulling out in step 1 is where it gets pretty situation specific, but generally using up your 20%-25% marginal tax bracket will help more than hurt and getting near the OAS claw back limit starts to hurt more than help.


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## CalgaryPotato (Mar 7, 2015)

I'm a lot of years from retirement so I haven't really spent a lot of time calculating out draw down possibilities but to me it makes sense to hold onto the TFSA last for one specific reason. 

Assuming that I'm going to try for a "die broke at 95" sort of approach, the reality is that I'm probably going to die before 95 with a fair bit of money left over. Because of that, I'd prefer the leftover money in the TFSA so when it all comes out in one shot it doesn't get a big tax bill and whatever is left over can go to my beneficiaries and not just the government.


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## My Own Advisor (Sep 24, 2012)

This is what I think...certainly to keep TFSA "until the very end" for any estate planning. Otherwise, yes, everyone's situation is different but I struggle with the suggestion to "...push the inevitable tax on RRSP/RRIF withdrawals “as far out in time as possible.”".

This only makes sense if your taxes are the same or lower as you get older. Otherwise, you are old AND you are paying the government more in taxes, which is a double-whammy. Just me?


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## steve41 (Apr 18, 2009)

PLEASE, PLEASE read this PDF. I wrote it in 2005, and everything is still valid today.

http://www.fimetrics.com/indexed-brackets-and-the-RRSP.pdf


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## OnlyMyOpinion (Sep 1, 2013)

Thanks Steve. For those reading TPSP (tax pre-paid savings plan) = TSFA.


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## janus10 (Nov 7, 2013)

Yes, I'm contrarian as well. We will draw down our RRSPs, perhaps to zero before we need to convert them into RRIFs. They won't be completely exhausted before we are eligible for early CPP.

We will put money into our TFSAs each year to our maximum allowed.

Our non registered account may grow too large to draw it down significantly unless we upgrade our spending amounts. Our non reg + TFSAs are about equal to our RRSPs and that total is about equal to our home equity.

For us, to withdraw from our non registered account would be like killing the golden goose. It has the greatest potential, and history, of creating wealth at a faster pace than our other investment accounts.


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> ... I'd be curious to know if our savvy CMFers agree with this approach?


Works for some ... not so much for others. 

There's far to many variations/assumptions/individual priorities IMO to look at one size fits most.




My Own Advisor said:


> What not use up tax inefficient money first (RRSPs/RRIFs), then tax efficient money (non-reg. dividends), then tax-free money (TFSA + principle residence)?


Assuming long life plus a small company pension, using the tax deferral of the RRSP/RRIF makes more sense for one co-worker. For another, the company pension is large enough that likely the route suggested makes more sense.




My Own Advisor said:


> This approach would also work better for estate planning?


Assuming one wants to pass on as much as possible. Others have said they prefer to motivate their family by not passing anything on.




My Own Advisor said:


> ... our current progressive tax system taxes higher incomes at much higher rates; withdrawals are forced higher; that can create a big tax hit down the road when seniors potentially relying on only CPP and OAS in their later years - which is also not tax efficient income ...


Depends on whether the assumption of "withdrawals forced higher" holds for the retiree. 

From a co-worker's projections, a small company pension + small investment income + middling CPP + OAS has the withdrawal tax rate for a personal RRSP down 20% from employment taxes, with a spousal RRSP lower the withdrawal tax rate further.

Not planning for RRSP/RRIF withdrawals might drive it up, increasing the tax rate ... but that's why there are estimations and planning in progress.




My Own Advisor said:


> ... What if a spouse dies early? Then the surviving spouse is now also hit with higher RRIF withdrawals.


Depends again on the specifics ... unless one has a crystal ball to predict, then one can only work with what one decides. 


Cheers


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## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> I'm a lot of years from retirement so I haven't really spent a lot of time calculating out draw down possibilities but to me it makes sense to hold onto the TFSA last for one specific reason.
> 
> Assuming that I'm going to try for a "die broke at 95" sort of approach, the reality is that I'm probably going to die before 95 with a fair bit of money left over. Because of that, I'd prefer the leftover money in the TFSA so when it all comes out in one shot it doesn't get a big tax bill and whatever is left over can go to my beneficiaries and not just the government.


There's where it depends IMO ... I can see where spending some of the income generated within the TFSA means:

a) no increase for taxable income.

b) gives the withdrawal $$$ back as additional TFSA contribution room, on top of the annual allotment.


Where the RRIF withdrawals become bigger - it might help keep the tax being paid flat for longer. Or if there's an expense plus lots of $$ in the RRSP/RRIF - using the TFSA $$ that can easily be replaced by the RRSP/RRIF withdrawal might accelerate the conversion from taxed to Canada tax free.



Cheers


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## like_to_retire (Oct 9, 2016)

agent99 said:


> ................ Every January, we withdraw the required minimum from our RRIFs. We use this to add to our TFSAs and to put some money aside for annual taxes (income and property). Excess is invested in taxable accounts. But since, min withdrawal rate was reduced, there is not as much excess.


Can I ask why you choose January instead of December? Isn't it better to take advantage of tax free growth for the year rather than cutting it short by taking it out in January?

I'm starting to get closer to the time I'll have to make a decision on this and I am interesting in peoples thought process regarding the date you set up with the broker to withdraw the funds. I don't need the funds, and will be using them for TFSA and non-registered investment.

ltr


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## AltaRed (Jun 8, 2009)

If the withdrawal funds the TFSA annual contribution, it is better to have the investment grow tax free in the TFSA. The ideal situation would be to pull just enough to fund the TFSA contribution on Jan 2nd and then pull the rest out early December. That assumes of course that one does not need any of the RRIF withdrawal to fund that year's cash flow spending needs (only the year following). The rationale for 'when' is situational.


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## steve41 (Apr 18, 2009)

OK..... a 55 yo, earns 100k yearly and has:
500k in rsp, 250 k in nreg (taxed as divs) and 250k in his TFSA, decides to deplete his RRSP by age 64.

Result? he attains a $59961 'die-broke at 95' yearly after tax income.

On the other hand, if he carries on maxing/sheltering his RRSP he achieves a $64034 after tax income.

That's an annual extra $4k in annual beer&groceries for the RRSP devotee.


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## Mookie (Feb 29, 2012)

My Own Advisor said:


> “The thought is we are going to hold on to those RRSPs and RRIFs as long as we can so that we can maximize those tax deferrals.”


I totally disagree with the above generalization.

First, let me pose a simple example... I think we would all agree that income splitting between spouses is a tax efficient approach right? Better to have two spouses each with $50k of taxable income than one with $80k and the other with $20K.

Well, if you agree with that, then why would anyone want to be in a really low tax bracket for the first half of retirement (when you're avoiding RRSP and RRIF withdrawals like the plague), and then be in a really high tax bracket for the rest, if you live that long. Of course if you die early, then it's even worse because all of your remaining RRSP assets will be taxed at once at horrendous rates on your final tax return.

The most tax efficient approach is to *smooth out your taxable income over the duration of your entire retirement*. When you think about it, it's actually a very similar concept to income splitting, but done over a period of many years. 

Now comes the "everyone is different" part: Just exactly how you manage to smooth out your taxable income, and which accounts you draw down in what order will depend on what flexible sources of retirement income you have at your disposal.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> If the withdrawal funds the TFSA annual contribution, it is better to have the investment grow tax free in the TFSA. The ideal situation would be to pull just enough to fund the TFSA contribution on Jan 2nd and then pull the rest out early December. That assumes of course that one does not need any of the RRIF withdrawal to fund that year's cash flow spending needs (only the year following). The rationale for 'when' is situational.


Yeah, I guess each case will be different.

I was thinking the best for myself would be to set a date of Dec 30th. Then, since my RRSP is made up of entirely a five rung GIC ladder, I would withdraw the required minimum funds myself manually at whatever time that GIC came due through the year. Then re-invest the remainder in a new GIC rung in the RRIF. 

The withdrawn funds would first fill the TFSA for the year, and the rest invested in the non-registered account. Then on Dec 30th, the broker would see the funds had been withdrawn through the year and no further action would be required.

So regardless of when that years GIC came due, the money would always be invested.

ltr


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## Mookie (Feb 29, 2012)

like_to_retire said:


> Can I ask why you choose January instead of December? Isn't it better to take advantage of tax free growth for the year rather than cutting it short by taking it out in January?


I agree it's better to wait until December. My parents don't really need their RRIF income to cover daily expenses, so they make an annual withdrawal in December, and then use most of it to top up their TFSA every January. The leftover goes to non-registered investments or gets spent. I plan to do the same when I get there.


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## steve41 (Apr 18, 2009)

The most tax efficient approach is to minimize the PV (present value) of all those future taxes.


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## agent99 (Sep 11, 2013)

like_to_retire said:


> Can I ask why you choose January instead of December? Isn't it better to take advantage of tax free growth for the year rather than cutting it short by taking it out in January?
> 
> I'm starting to get closer to the time I'll have to make a decision on this and I am interesting in peoples thought process regarding the date you set up with the broker to withdraw the funds. I don't need the funds, and will be using them for TFSA and non-registered investment.
> 
> ltr


January or December, your withdrawal amount will be the same and will still be in the same tax year so will attract same taxes. If you delay until December and withdraw the minimum, only tax advantage would be that income on the withdrawal amount only would be additionally sheltered, but eventually will be taxed as income. On the other hand, if you withdraw early, you may be able to use the funds to avoid CGs on selling from your taxable accounts. It also can provide a source of funds for TFSA additions which can then be invested tax free. Or can be invested in dividend payers or other lower taxed securities in taxable accounts.
What we do works for us in managing our cash flow requirements, but YMMV.


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## none (Jan 15, 2013)

I think it makes sense to dip into your RRSP fairly heavily (keeping an eye on tax brackets) and use that to defer your CPP until 71.


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## steve41 (Apr 18, 2009)

Max, then shelter your RRSP/RRIF. I can't stress this enough.


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## My Own Advisor (Sep 24, 2012)

steve41 said:


> PLEASE, PLEASE read this PDF. I wrote it in 2005, and everything is still valid today.
> 
> http://www.fimetrics.com/indexed-brackets-and-the-RRSP.pdf


Will do Steve  Cheers.


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## My Own Advisor (Sep 24, 2012)

@Mookie,

That quote is not from me. That quote, was from the G&M article, just clarifying 

I personally wouldn't avoid "RRSP and RRIF withdrawals like the plague", rather, to your point I _am planning_ to smooth out taxes over retirement with a small bias to pay less taxes in my old age when I might need the money the most. This is why I didn't like the article. It assumes too much. Sure, personal finance is personal but I have a hard time with anyone looking at killing off their TFSA before their RRSP/RRIF. Maybe that's just me - which is obviously not the same as these "experts".


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## humble_pie (Jun 7, 2009)

like_to_retire said:


> Can I ask why you choose January instead of December? Isn't it better to take advantage of tax free growth for the year rather than cutting it short by taking it out in January?



the problem is that any growth during the year is going to be the opposite of tax-free. Instead it is going to be 100% taxable when withdrawn.

leaving funds to accumulate in RRIF from january to december when such funds could be withdrawn in january, then invested in TFSA (zero taxation) or in non-registered dividend paying securities (favourable rates of taxation) or in securities delivering capital gains (also favourably taxed) does not make sense to me.

other parties in this thread are deliberately drawing down their RRSPs via eary RRIFs starting age 65. 

every case will be different; however there will always be some seniors for whom the 100% taxation inclusion of RRIF withdrawals will be a negative handicap.

.


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## Jimmy (May 19, 2017)

steve41 said:


> PLEASE, PLEASE read this PDF. I wrote it in 2005, and everything is still valid today.
> 
> http://www.fimetrics.com/indexed-brackets-and-the-RRSP.pdf


Yes. Saw a show on BNN and the advisor said generally putting $ and the tax savings into an RRSP was always better than in a non reg acct even up until the end of RRSP eligibility at 71 - even if you are in the lowest tax bracket. The additional tax savings amt $ compounding tax free is the difference.

I did the math in Excel and found the same for any level of return and tax rate.


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## like_to_retire (Oct 9, 2016)

humble_pie said:


> the problem is that any growth during the year is going to be the opposite of tax-free. Instead it is going to be 100% taxable when withdrawn.
> 
> leaving funds to accumulate in RRIF from january to december when such funds could be withdrawn in january, then invested in TFSA (zero taxation) or in non-registered dividend paying securities (favourable rates of taxation) or in securities delivering capital gains (also favourably taxed) does not make sense to me.
> .


Yes of course, any growth in a RRIF through the year will be taxable upon withdrawal, but deferring the withdrawal of that growth so that it's sheltered from taxes is always an advantage. I understand the minimum withdrawal required for a calendar year will suffer the same tax whether withdrawn in January of December, but any growth derived from leaving the minimum withdrawal in the RRIF over the year is deferred taxation. So it's hardly the opposite of tax-free, it's deferred, which is an advantage.

ltr


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## agent99 (Sep 11, 2013)

Deferring withdrawal until December could be a slight advantage in some cases. But in other cases not. 

If for example, I needed funds to pay my taxes early in the year and for that I otherwise would have to sell a long term holding in my taxable account that may have a 200-300% capital gain. I don't think there would be any sense in leaving the funds in until December!

Better to think things out for your own situation than believe stuff you read on forums or from "advisers"


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## like_to_retire (Oct 9, 2016)

agent99 said:


> Deferring withdrawal until December could be a slight advantage in some cases. But in other cases not.
> 
> If for example, I needed funds to pay my taxes early in the year and for that I otherwise would have to sell a long term holding in my taxable account that may have a 200-300% capital gain. I don't think there would be any sense in leaving the funds in until December!


Good point, agent99.

ltr


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## GreatLaker (Mar 23, 2014)

I believe this is to complex to "eyeball" the right decision. The correct approach is one that maximizes estate value given a set of assumptions around rate of return, tax rates, life expectancy, and annual spending. Or looking at it the opposite way, getting the maximum portfolio withdrawal for a given estate value. Calculating that requires a detailed model.

In retirement, before age 71 when mandatory RRIF withdrawals start I expect my marginal tax rate to be ~20%. After mandatory RRIF withdrawals start I expect it to be ~30%. RRSP withdrawals taxed at full marginal rate so at age 65 if I withdraw $100 from my RRSP I will pay ~$20 in income tax. Non-registered withdrawals get taxed only on capital gains at 50% inclusion rate. So say half of the value of the investments i sell is capital gains. If I sell $100 in stock, with 50% capital gain and 50% inclusion rate, I pay $5 tax. So by selling/withdrawing from non-registered instead of RRSP, I retain $15 in my portfolio to continue compounding, instead of paying it to the tax man.

Then you need to overlay on that strategy future tax issues like the fact that mandatory RRIF withdrawals may cause OAS clawback, and if one spouse dies before the other the surviving spouse's income may then be high enough to incur higher tax rates. Plus when the last spouse dies all the portfolio is taxed in the year of death based on actual or deemed disposition.

I will withdraw a set amount from RRSP each year ($ low 5 figures) before age 71, with the intent of minimizing or eliminating OAS clawback. Other than that I plan to withdraw most of my retirement spending needs from non-registered as long as I can, then from tax-deferred (RRSP/RRIF/LIRA), then from TFSA last. Purposefully spending down my RRSP to zero as soon as possible would, for me result in paying more tax earlier and having less long term money. I had a detailed plan done by a CFP using Naviplan so I have a good confidence level that the analysis is right for my situation. 

So for me, the premise and recommendations of the article are correct. YMMV


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## ian (Jun 18, 2016)

We are working this issue. We have taken our CPP. OAS starts now for me. I expect clawbacks but not until tax time (got an exemption on clawback for year 1).

We ran the numbers a number of ways. Decided in the end forget about RRSP's and RIF until my spouse hits 71. We want as much tax deferral as we possibly can so that our investments can grow in a tax free environment. Our finances changes considerably this year so we will wait it out and revisit our decision in a year or so. 

We do tax planning in November. By then we have a reasonable idea of what our respective incomes will be. We then decide what changes to make to our investments that will give us the best tax advantage..

I cannot imagine that there is any right answer. Everyone's numbers are different. Steve41...much appreciate your posting.


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## Mookie (Feb 29, 2012)

My Own Advisor said:


> @Mookie,
> 
> That quote is not from me. That quote, was from the G&M article, just clarifying
> 
> I personally wouldn't avoid "RRSP and RRIF withdrawals like the plague", rather, to your point I _am planning_ to smooth out taxes over retirement with a small bias to pay less taxes in my old age when I might need the money the most. This is why I didn't like the article. It assumes too much. Sure, personal finance is personal but I have a hard time with anyone looking at killing off their TFSA before their RRSP/RRIF. Maybe that's just me - which is obviously not the same as these "experts".


Hi My Own Advisor, sorry for the misleading quote in my previous post. Yes, I am disagreeing with the statement in the G&M article, not disagreeing with you. 

Based on your statements above and your original post, it sounds like we're on the same page on this one.


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## AltaRed (Jun 8, 2009)

For me, my RRSP is more a nuisance than anything else (less than 10% of my portfolio). It makes sense for me to simply stick with RRIF withdrawal minimums. I will likely use the withdrawals in December each year with 100% withholding so as to potentially eliminate my instalment payments altogether. Time will tell.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> For me, my RRSP is more a nuisance than anything else (less than 10% of my portfolio). It makes sense for me to simply stick with RRIF withdrawal minimums. I will likely use the withdrawals in December each year with 100% withholding so as to potentially eliminate my instalment payments altogether. Time will tell.


Yeah, same here, I'm throwing around a bunch of ideas in my head, since I had a DB pension through my career, they reduced the amount I was able to contribute to RRSP's. The minimum withdrawal payments will polish off my OAS with clawback, so the taxes are already over 50% (really dumb to contribute to an RRSP in the first place). I have toyed with the idea of first topping up my TFSA and then perhaps reduce my instalments as you indicate, rather than investing the remainder in non-registered account. Every case is different for sure.

ltr


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## steve41 (Apr 18, 2009)

To all you RRSP/RRIF avoiders, since I own a (very small) part of the national treasury.... thanks for your extra tax contributions.


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## like_to_retire (Oct 9, 2016)

steve41 said:


> To all you RRSP/RRIF avoiders, since I own a (very small) part of the national treasury.... thanks for your extra tax contributions.


Unfortunately for some, they contribute at an approximate 30% rate and withdraw at over 50%, so sometimes not such a great deal.

ltr


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## AltaRed (Jun 8, 2009)

like_to_retire said:


> Unfortunately for some, they contribute at an approximate 30% rate and withdraw at over 50%, so sometimes not such a great deal.
> 
> ltr


I likely contributed to my RRSP at some point at an MTR less than what my withdrawal MTR will be. C'est la vie to some degree. I suppose the consolation is some of us were fortunate enough and/or good investors and/or discinplined to do better in life than we expected to be. I don't let it bug me. Truth of the matter is I never gave it much thought at the time. Thank goodness there are internet forums available now to help some people from at least taking the deduction until they are in a higher MTR


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> I likely contributed to my RRSP at some point at an MTR less than what my withdrawal MTR will be. C'est la vie to some degree. I suppose the consolation is some of us were fortunate enough and/or good investors and/or disciplined to do better in life than we expected to be. I don't let it bug me. Truth of the matter is I never gave it much thought at the time. Thank goodness there are internet forums available now to help some people from at least taking the deduction until they are in a higher MTR


Exactly, and it doesn't really bug me either until someone posts a snide, _"thanks for your extra tax contributions"_.

ltr


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## steve41 (Apr 18, 2009)

I am sorry if I have offended anyone, its just that I have seen a large number of financial plans and have yet to see one in which the tax rate in retirement is higher than the rate pre-retirement.


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## AltaRed (Jun 8, 2009)

steve41 said:


> I am sorry if I have offended anyone, its just that I have seen a large number of financial plans and have yet to see one in which the tax rate in retirement is higher than the rate pre-retirement.


I suppose that may be because of the slice of the population base that comes to you for financial advise OR how you define pre-retirement MTR. A 40 year career can result in one going through a number of MTR brackets and taking RRSP deductions in the early years, even discounted to a PV basis, can be counter-productive. The number of retirees fighting 40+% (combined BC) MTRs may surprise you.


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## steve41 (Apr 18, 2009)

I am not a financial planner. The plans I see come to me via the various financial planners who use my software.


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## kcowan (Jul 1, 2010)

Well I think even the snide comments can be accepted when we give back our OAS. Every little helps. For me with a DB plan, I can thank the government for limiting my ability to contribute. At the time I didn't appreciate it.


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## pwm (Jan 19, 2012)

AltaRed: I can personally attest to that.

I've been retired since June 2005. The last full year I worked was 2004. Just checked my saved pdf files, and my MTR for 2004 was *41.3%* (From Ufile). Last year's MTR was *43.4%*. This is in Manitoba.


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## agent99 (Sep 11, 2013)

steve41 said:


> I am sorry if I have offended anyone, its just that I have seen a large number of financial plans and have yet to see one in which the tax rate in retirement is higher than the rate pre-retirement.


Steves, realize that you are looking at a large universe through a very small keyhole.


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## heyjude (May 16, 2009)

steve41 said:


> I am sorry if I have offended anyone, its just that I have seen a large number of financial plans and have yet to see one in which the tax rate in retirement is higher than the rate pre-retirement.


I would definitely be in that situation at age 71 if I was not taking proactive steps to avoid it. I will find out in 11 years whether my strategy has worked.


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## My Own Advisor (Sep 24, 2012)

Definitely not avoiding the RRSP or future RRIF it will provide. I have a DB pension although not gold-plated. I have decided to fully max out my RRSP (and my wife's RRSP - almost there in another 1-2 years). 

I figure having all RRSPs and TFSAs maxed, in addition to any small workplace pension will give us options in life. I could be wrong of course...

What I question, back to the original topic, is the withdrawal sequence. The constant barrage of advice I hear is to keep your RRSP "until the end" (i.e., age 71). I simply don't believe this is a wise choice for many people including those without any pension from work. Then again, maybe I haven't seen a large enough sample size myself to such advice (keeping RRSP around as long as you can) is actually the position that best suits most Canadians given their savings rates and assets.

For you CMFers with a MTR north of 40%, you can done VERY well to prepare for retirement. You are easily in the 1% and likely had great savings rates + great financial discipline over the years. Kudos. Even with your tax rates now I suspect you wouldn't change very much. Your "tax problems" in retirement are much better than the alternatives - no?


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> I likely contributed to my RRSP at some point at an MTR less than what my withdrawal MTR will be. C'est la vie to some degree ...


True ... though, what's having the use of the tax money worth?




AltaRed said:


> ... Truth of the matter is I never gave it much thought at the time. Thank goodness there are internet forums available now to help some people from at least taking the deduction until they are in a higher MTR


For me, no internet forum was required ... the combination of people complaining about how their RRSP contribution room was disappearing after the DB pension contribution kicked in plus curiosity to confirm/refute the claim made the impacts clear.


Now had the TFSA been available three or so decades ago, that would have shifted the field.


Cheers


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## kcowan (Jul 1, 2010)

My Own Advisor said:


> Even with your tax rates now I suspect you wouldn't change very much. Your "tax problems" in retirement are much better than the alternatives - no?


Yes the biggest two problems are: how big the portfolios have grown, and how fast do we share the wealth to get our tax rate down. I would never have anticipated the wealth created even while our fixed income returns have been so anemic.


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## peterk (May 16, 2010)

If people aren't using their RRSPs out of worry about the retirement tax rate, they aren't experiencing any RRSP room appreciation over the decades, and where are they going to keep foreign investments and bonds?

Seems like a simplistic analysis is often all that most people consider, comparing RRSP withdrawals vs. an unregistered account, and the unregistered investments are nothing but capital gains tax and Canadian dividends only...

I think if you applied a more realistic portfolio like 1/3 each of Canadian stocks, US stocks, Bonds. And ran it out for 30 years of savings and another 30 years of RRIF withdrawals, it would show that the RRSP is critically important for holding those US stocks and Bonds, and that even with a substantially higher retirement MTR than during working year, your portfolio is still miles ahead of a wholly unregistered one.


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## canew90 (Jul 13, 2016)

For us older folks, we only had the rrsp and if we could max'ed it in order to reduce taxes. Now that we're retired and having to withdraw tax is a concern and it was more so before the Conservatives reduced the min withdrawal %'s. Certain it just deferred it, but I feel it will even out the tax payments. Our rrif is about 60% of our portfolio so the withdrawals are getting large, especially in rising markets.

For those not retired and especially the young, I suggest you Max the tfsa before putting any funds into an rrsp.


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## Nerd Investor (Nov 3, 2015)

canew90 said:


> For us older folks, we only had the rrsp and if we could max'ed it in order to reduce taxes. Now that we're retired and having to withdraw tax is a concern and it was more so before the Conservatives reduced the min withdrawal %'s. Certain it just deferred it, but I feel it will even out the tax payments. Our rrif is about 60% of our portfolio so the withdrawals are getting large, especially in rising markets.
> 
> For those not retired and especially the young, I suggest you Max the tfsa before putting any funds into an rrsp.


I would say for most people maxing RRSPs first is still the right choice. The rule itself is simple enough: If you are in a higher marginal tax bracket now than you expect to be in retirement, max your RRSPs first. If you are in a lower marginal tax bracket now than you expect to be in retirement, max your TFSA first. If you expect it to be the same, you should generally be indifferent. I suppose you could opt for the TFSA in that case due to the additional flexibility. In any case, both registered accounts should take preference over non-registered accounts.


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## agent99 (Sep 11, 2013)

RRSPs seem like a good idea, but what do taxpayers do with the tax refund? Many spend it! That refund should be invested and preferably in TFSA in order to get full benefit of RRSP . Or use it to pay down debt.

RRSPs are more advantageous for those in higher tax brackets when working. Not so much those with low earnings. For them TFSAs are probably best.


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## My Own Advisor (Sep 24, 2012)

kcowan said:


> Yes the biggest two problems are: how big the portfolios have grown, and how fast do we share the wealth to get our tax rate down. I would never have anticipated the wealth created even while our fixed income returns have been so anemic.


Yup kcowan. So, sharing the wealth to get your tax rate down is one of your biggest problems in retirement. Ah, money issues  Kidding, meaning, this is a great problem to have!!! You and others in here - hence, we can all learn from you.

As for the TFSA and RRSP debate I've decided to end it entirely for me and have maxed out both. I'm now very fortunate to have zero contribution room left for 2017.


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## TomB16 (Jun 8, 2014)

steve41 said:


> PLEASE, PLEASE read this PDF. I wrote it in 2005, and everything is still valid today.
> 
> http://www.fimetrics.com/indexed-brackets-and-the-RRSP.pdf


For the vast majority of people, a far greater advantaged of the RRSP is that deductions for en employed person reduce tax load at the marginal rate. Individual can withdraw their basic deduction tax free so, even if they have the identical marginal rate, the blended tax rate will be less.

This advantage goes down as the RRSP grows in size but it never goes away.

It has become crystal clear the folks advocating ignoring the RRSP and contributing entirely to a TFSA have not run any real world matching scenarios. I have not come up with a scenario in which ignoring the RRSP is an advantage.

The TFSA is like a turbocharger for the RRSP, however, even without the TFSA, a person can transfer quite a bit of distributing stock out of their RRIF each year collect the dividends without paying much tax.

For the person with a $2M RRSP, things are different (the advantage is reduced but not eliminated) and I know someone will immediately counter with this corner case but get real. RRSPs work very well for their intended purpose.


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## steve41 (Apr 18, 2009)

Thank you TomB!


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## TomB16 (Jun 8, 2014)

To belabour the point....

Let's say you make $90K per year in Ontario. You put $10K into an RRSP. You get... what... $4100? 37.91% marginal rate.

Let's say you pull $60K out of your RRSP. You will pay perhaps $11.3K in tax. That's 18.79% blended rate.

http://www.ey.com/ca/en/services/tax/tax-calculators-2017-personal-tax

Even if you pulled $90K per year out of your RRSP, you would only pay 23% blended rate. That's a lot less than the 38% you saved when you contributed to the registered account.


... but it is also clear that having a bunch of unregistered, dividend producing investments is not a big problem. You can make $100K per year of distributions and only pay about 4% tax in most provinces. So, the TFSA is a very nice thing for Canadians but it is not as big of a benefit as the RRSP.


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## AltaRed (Jun 8, 2009)

I dispute the methodology because if you took the tax deduction at the then marginal rate on contribution, you also take out the withdrawal at your then marginal rate, not the blended rate, that then applies on the next $$ of taxable income. You cannot look at the $90k you pulled out of the RRSP in isolation of your other taxable income.

IOW, setting CPI changes in tax brackets aside over time, there is no difference between the tax credit (rate) on a $10k RRSP deduction from taxable income of $100k at age 45 and the taxes payable on a $10k RRIF withdrawal on an already taxable income of $90k (total of $100k taxable income) at age 75. In this example, the MTR on the RRIF withdrawal is the same as the MTR during the RRSP contribution. It is really that simple when you throw it all into tax software.


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## TomB16 (Jun 8, 2014)

AltaRed said:


> You cannot look at the $90k you pulled out of the RRSP in isolation of your other taxable income.


Fair enough.

The information I presented was based on someone who ONLY uses an RRSP and doesn't have a bunch of other taxable income.

I stand by the idea, however. To dismiss it is ridiculous.

If someone has a few million in assets (not that difficult to do), they probably haven't been working for a company at $90K per year for 30 years. Even if they did work for a company at a professional wage for 30 years and they had a bunch of unregistered investments, how big will their RRSP be? Let's say they put $3~7K into their RRSP for 30 years. They might have $400-900K. That's not going to yield them a $60K/yr withdrawal rate and this is for a well paid professional.

... so let's say they have $1M in their RRSP (a number even I would contend is too much), and they withdraw $40K annually. It might look like this:

$40K withdrawl at 14.4% blended rate plus additional incomme...

Let's say they make $40K in dividends. That's another 8% on the $40K. Total tax paid....$8960 in Ontario

If you want to get into the, "Sure but what if they have $14M in RRSP and own $50M of non-dividend paying companies that double every 6 months and they work until the last year before they die.", I'm no longer interested in the discussion.

I have yet to run a scenario in which someone in a high tax bracket is not advantaged by an RRSP. It seems to work best for people in the $90-200K range. For people at the extreme high end, the benefit tends to be less but it remains a benefit.

If you are in a low bracket and you are a magician with stocks, there are situations where you would pay similar or a bit higher tax than you would have without the RRSP.

If you've never paid tax, contribute $2K when you're 16, find a way to parley that into $5M when you "retire" from not making any money your whole life, you will now be paying 45% tax on the money you earned by clicking icons in WebBroker. Yeah, that would be a disadvantage to the person who contributed $2K to their RRSP with no tax benefit.


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## heyjude (May 16, 2009)

AltaRed said:


> IOW, setting CPI changes in tax brackets aside over time, there is no difference between the tax credit (rate) on a $10k RRSP deduction from taxable income of $100k at age 45 and the taxes payable on a $10k RRIF withdrawal on an already taxable income of $90k (total of $100k taxable income) at age 75. In this example, the MTR on the RRIF withdrawal is the same as the MTR during the RRSP contribution. It is really that simple when you throw it all into tax software.


Exactly. *You will only achieve a lower tax rate for RRSP withdrawals if you are in a lower marginal tax bracket when you withdraw from them than when you put the money in. *

In my own case, when I was working, I had a small salary and I also had a professional corporation. The salary put me in the middle tax bracket. Any RRSP contributions provided perhaps a 30% deduction. 

In retirement, I take dividends from my corporation. Grossed up dividends, plus investment income (thank you, bull market) put me in the middle tax bracket. When I reach age 72 and have RMDs, these combined income streams, plus CPP, will push me right into the top tax bracket. I will end up paying ~50% tax on those RRSP withdrawals. To avoid this, I am cautiously taking early withdrawals from my RRSPs, just enough to stay in the middle tax bracket, but enough to ensure that I stay there after age 72.

And don't even mention OAS clawback, which will be inevitable.


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## AltaRed (Jun 8, 2009)

It is fair to say the RRSP mechanism works for the vast majority of Canadians. That is what Tom and Steve are trying to say...and is based on their own experiences. I accept that. 

It is also fair to say those fortunate (or successful or wise) enough to be in a high MTR in retirement will fair less well, and particularly so if early contributions in one's career were deducted in low MTR earning years. That is where some of us find ourselves. I don't actually regret having made the RRSP contributions in the early years, but would have been wiser to take the tax deduction later. OTOH, one does not necessarily know in their 20s and 30s how successful/fortunate/disciplined they will be so unless you know that in advance, I suspect it is best to take the value of the tax deduction. Tax deferment (and getting investment returns on the gov'ts share) is worth something too.

Added: As I might have said earlier, I will be taking the minimum withdrawals from what will be a puny RRIF anyway. It won't really factor much in my overall forward plan.


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## steve41 (Apr 18, 2009)

I guess my complaint is that the pundits in the press try to be cool and spout this "RRSPs are evil" crap and the average Larry Lunchbucket or Junior exec working for a normal wage, and saving for retirement take it to heart.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> ........
> It is also fair to say those fortunate (or successful or wise) enough to be in a high MTR in retirement will fair less well, and particularly so if early contributions in one's career were deducted in low MTR earning years. That is where some of us find ourselves. .


Exactly, but Tom seems to refute that. I agree that the tax free compounding is great and it helps a lot, but when an entire RRIF withdrawal is taxed marginally at 51%, and the funds were deposited through your career at a much lower rate, (especially in the early years if you contributed your whole life), then even compounding can't make it a wash.

Yea, I understand the average and the marginal tax rates. But if we take a pensioner with a $40000 pension, CPP, OAS, $18000 dividends and $6000 interest income, they'll enjoy a marginal rate on the last dollar of about 47% in Ontario. If that person has a modest RRIF of $250,000, then the first year they must withdraw a mandatory $13200. The extra tax they'll pay on that withdrawal will be $6738. This translates to 51% on every extra dollar.

In this persons early career, I can't imagine the marginal savings would have been at half that rate. The tax free compounding would have helped, but would it make the RRSP a better bet than non-registered investments?

ltr


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## Jaberwock (Aug 22, 2012)

like_to_retire said:


> Exactly, but Tom seems to refute that. I agree that the tax free compounding is great and it helps a lot, but when an entire RRIF withdrawal is taxed marginally at 51%, and the funds were deposited through your career at a much lower rate, (especially in the early years if you contributed your whole life), then even compounding can't make it a wash.
> 
> Yea, I understand the average and the marginal tax rates. But if we take a pensioner with a $40000 pension, CPP, OAS, $18000 dividends and $6000 interest income, they'll enjoy a marginal rate on the last dollar of about 47% in Ontario. If that person has a modest RRIF of $250,000, then the first year they must withdraw a mandatory $13200. The extra tax they'll pay on that withdrawal will be $6738. This translates to 51% on every extra dollar.
> 
> ...


The TFSA is a much better investment vehicle for people who are in a low tax bracket.


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## AltaRed (Jun 8, 2009)

steve41 said:


> I guess my complaint is that the pundits in the press try to be cool and spout this "RRSPs are evil" crap and the average Larry Lunchbucket or Junior exec working for a normal wage, and saving for retirement take it to heart.


I've not seen that kind of 'crap' so I will defer to your observations. There has been a lot debated here and on FWF about RRSP vs TFSA for example over time and there are always cases where the TFSA is likely better....if for no other reason than a lot of lower income folk will never be able to avail themselves of worthwhile tax deductions for RRSPs nor save enough to do it anyway. 

That said, the vast $50-60k middle class in the 2nd tax bracket can gain value from RRSP deductions and should do so...... since many of them won't or don't have DB pension plans. I'd rather not spend taxpayer dollars keeping them afloat in their later years.


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> Exactly, but Tom seems to refute that.


I do.


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> But if we take a pensioner with a $40000 pension, CPP, OAS, $18000 dividends and $6000 interest income, they'll enjoy a marginal rate on the last dollar of about 47% in Ontario. If that person has a modest RRIF of $250,000, then the first year they must withdraw a mandatory $13200. The extra tax they'll pay on that withdrawal will be $6738. This translates to 51% on every extra dollar.


We are in a significantly worse position than this and we will not be paying anything close to 50% on our registered withdrawals.

I would enjoy discussing this but I can't return to it until tomorrow and I'm not writing up a scenario on my phone...


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## GreatLaker (Mar 23, 2014)

steve41 said:


> OK..... a 55 yo, earns 100k yearly and has:
> 500k in rsp, 250 k in nreg (taxed as divs) and 250k in his TFSA, decides to deplete his RRSP by age 64.
> 
> Result? he attains a $59961 'die-broke at 95' yearly after tax income.
> ...


That is the crux of the issue. Unless you have a model that considers estimated growth rates, tax rates, and investment returns to give the highest withdrawal rate for a given estate value you are just guessing.


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## steve41 (Apr 18, 2009)

I chose 3.5% as a rate of return and 2% inflation. Would you like to suggest something different? BTW, the tax algorithm changes almost not at all from year to year apart from the indexed brackets.


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## humble_pie (Jun 7, 2009)

as always, the RRSP vs TFSA debate is very interesting. Much food for thought.

but surely a incontestible golden mantra is that a TFSA can pass through an estate to its heirs with zero taxation, no? 

whereas an RRSP/RRIF will be fully & heavily taxed as of the deceased person's final tax return, which will be prepared by his executors


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## AltaRed (Jun 8, 2009)

Sure but that does not take away from the overall economic benefits of RRSPs/RRIFs. The tax is just paying off the loan to the taxpayer, even if done at a lump sum and potentially higher MTR. It is not the taxpayer's fault the RRSP/RRIF owner died prematurely, e.g. pre 85 years of age. The withdrawal percentages that escalate with increasing age normally take care of that issue.

P.S. That problem can be solved by buying an annuity rather than managing RRIF withdrawals.

Added a thought.... http://business.financialpost.com/p...rifs/wcm/ad309dec-e8cb-44f5-af04-0fa69aa40429

Didn't want to go down the RRIF vs Annuity rabbithole (separate topic) but found this interesting too http://www.moneysense.ca/save/retirement/rrif/rrif-or-annuity-which-one-is-right-for-you/ Whether a RRIF is better than an annuity depends, IMO, on how aggressive (or conservative) one's investments will be and rate of return expectations.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> The tax is just paying off the loan to the taxpayer, even if done at a lump sum and potentially higher MTR.


that's it in a nutshell. It's the higher MTR that non-yet-deceased taxpayers find troubling.





> It is not the taxpayer's fault the RRSP/RRIF owner died prematurely, e.g. pre 85 years of age. The withdrawal percentages that escalate with increasing age normally take care of that issue.
> 
> P.S. That problem can be solved by buying an annuity rather than managing RRIF withdrawals.


here the problem is one you've mentioned yourself. When taxpayer is age 30s, 40s, 50s, he doesn't normally think to avoid RRSP/future RRIF so buy an annuity instead. I mean, i never even heard of anybody having this thought.

it's normal in 30s, 40s & 50s to build an RRSP. It's as canadian as july the first. No one can safely predict that they'll be rich enough in old age that the RRIF withdrawals will hurt the tax picture, could trigger OAS clawback or push taxpayer into permanently higher tax bracket.

.


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## AltaRed (Jun 8, 2009)

Here should be a no-brainer. I have a DB pension, although not large since I shared it 50-50 with a former spouse upon divorce, albeit it could cover essentials. My relatively large non-reg portfolio is 100% equities or pseudo-equities, e.g. Prefs plus a few REITs. My puny RRSP is 100% fixed income in a bond/debenture/GIC ladder....that currently would struggle to earn much more than 3% yield. The MoneySense article would say that if I am stuck at 3% yield on FI in my RRSP/RRIF, why don't I just annuitize the whole thing (maybe with 10 year term guarantee for my current spouse), which then becomes additional fixed income like my DB pension. The article suggests I'd be further ahead if I, at 71 years of age, live to be 86.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> Here should be a no-brainer. I have a DB pension, although not large since I shared it 50-50 with a former spouse upon divorce, albeit it could cover essentials. My relatively large non-reg portfolio is 100% equities or pseudo-equities, e.g. Prefs plus a few REITs. My puny RRSP is 100% fixed income in a bond/debenture/GIC ladder....that currently would struggle to earn much more than 3% yield. The MoneySense article would say that if I am stuck at 3% yield on FI in my RRSP/RRIF, why don't I just annuitize the whole thing (maybe with 10 year term guarantee for my current spouse), which then becomes additional fixed income like my DB pension. The article suggests I'd be further ahead if I, at 71 years of age, live to be 86.



O I C

turning one's RRSP - in whole or in part - into an annuity means the heavy tax consequences of dying with RRIF still intact are avoided?

neat idea, if i'm understanding correctly


EDIT: whizzed thru the moneysense article, thankx

the catch i can see is that income from the annuity will likely be higher than a conservatively invested FI type of RRIF. Therefore taxes will be higher while taxpayer is still living. I guess a lot depends on whether one is dying to benefit one's estate or not ...


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## Karlhungus (Oct 4, 2013)

I dunno. TSFA seems way better to me. The fact that it does not count toward income means you can max OAS, CPP and even GIS. You are not doing that with RRSP.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... but surely a incontestible golden mantra is that a TFSA can pass through an estate to its heirs with zero taxation, no?


Not sure one can assume this.

"Pass through the estate" seems to mean making the TFSA beneficiary the estate. This means it would be included in the estate, which may be increasing the probate taxes.

Naming a beneficiary is supposed to avoid the TFSA $$ going through the estate ... though any growth between death and the beneficiary receiving the $$ (and potentially using their own TFSA contribution room to make it tax free) is assessed to the beneficiary.

The situation where one seems to be able to be sure of zero taxation is if a qualified beneficiary is named plus the proper procedure is followed to roll the received TFSA funds into one's own TFSA without using TFSA contribution room.

http://www.taxtips.ca/tfsa/holderdeath.htm


Cheers
Where "pass through an estate" is true - my understanding that this means one has made the estate the TFSA beneficiary, making the TFSA included in the estate. If probate is tied to the value of the estate, the TFSA is going to be taxed.

Even if one
The way the TFSA pays one with minimal tax or no tax is to make a person (i.e. not the estate) the beneficiary. A qualified person can roll the TFSA into their own TFSA with no taxes. Any other person will have taxes charged on any growth from date of death until it is in their hands


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## TomB16 (Jun 8, 2014)

Good morning.



like_to_retire said:


> Yea, I understand the average and the marginal tax rates. But if we take a pensioner with a $40000 pension, CPP, OAS, $18000 dividends and $6000 interest income, they'll enjoy a marginal rate on the last dollar of about 47% in Ontario. If that person has a modest RRIF of $250,000, then the first year they must withdraw a mandatory $13200. The extra tax they'll pay on that withdrawal will be $6738. This translates to 51% on every extra dollar.


I get a marginal rate of 31.48% in Ontario and I didn't include pension splitting or the pension tax credit.


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## TomB16 (Jun 8, 2014)

Karlhungus said:


> I dunno. TSFA seems way better to me.


I think it's great that you prefer the TFSA and I'm happy it's there for you. It's great that we have options and choices.

I've run enough scenarios to feel I have a handle on it and it appears to me that using an RRSP is an advantage in nearly every case, with a couple of corner cases that could be easily rectified.


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## janus10 (Nov 7, 2013)

steve41 said:


> I chose 3.5% as a rate of return and 2% inflation. Would you like to suggest something different? BTW, the tax algorithm changes almost not at all from year to year apart from the indexed brackets.


Yes, please. How about $500k in RRSP, $500k in non registered, $50k in TFSA and growth rates of 10% for the RRSP and TFSA but 30% with the non registered?


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## like_to_retire (Oct 9, 2016)

TomB16 said:


> Good morning.
> 
> I get a marginal rate of 31.48% in Ontario and I didn't include pension splitting or the pension tax credit.


I don't really know what tax program you're using, but if I use either my own program or the easier 2017 Tax Tips Income Tax Calculator, and use the following parameters for a 72 year old single pensioner:

____________________________________________________

Pension = $40000
CPP = $13270
OAS = $7004
Eligible Dividends = $18000
Interest = $6000
Qualified payment from a $250K RRIF 1st year = $13200
_____________________________________________________


I get taxes of $23,435.

As an example, if I add $1000 of interest income, the taxes are $23954.

That's $519 in tax on $1000 income. That's a marginal rate of 51.9%

The RRIF of $13200 added taxes of ($6677) that result in those extra RRIF dollars attracting 50.6% rate.

ltr


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## AltaRed (Jun 8, 2009)

Tom, you have to look at the calculation with RRIF income being the last increment on one's taxable income (just as you would taking the RRSP tax deduction). You cannot cherry pick.

Run the scenario without any RRIF qualified payments, and then with RRIF qualified payments. That IS the measure of what RRIF income really costs you.

That said, LTR was a bit cute in this specific example because OAS clawback factors into that calcuation but that is indeed a very real case that would be experienced by that taxpayer. When one is in OAS clawback territory, that RRIF income most likely comes at a steeper cost than when the RRSP tax deduction was taken 30 years ago and maybe even when it was taken just pre-retirement. I think the point is that, while not common for the average taxpayer, there are real scenarios out there where the RRSP/RRIF retirement plan can cost you real money. Thus one needs to avoid blanket statements that there are 'no scenarios' where contributing to an RRSP makes one worse off'.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> ............ I think the point is that, while not common for the average taxpayer, there are real scenarios out there where the RRSP/RRIF retirement plan can cost you real money. Thus one needs to avoid blanket statements that there are 'no scenarios' where contributing to an RRSP makes one worse off'.


And that's point I'm attempting to make to Tom. I'm not complaining, I'm just giving an example that's very real to me and pretty much every one of my friends.

As stated Tom, when it comes to taxes, credits and deductions, you can't really cherry pick the ones you don't especially agree with and not include them in your marginal rate calculations. They collectively result in a certain percentage of each additional dollar you make going to the government. It's a real thing. Once someone is in retirement and they're in a certain bracket, this doesn't usually change. Their pension, CPP, OAS, RRIF will all just track inflation and their investments may make a bit better, but once you're in a bracket, and the bracket happens to be above 50%, you'll likely stay there, so it isn't a blip on the radar.

As I said, I don't have a lifetime of calculations to refute that an RRSP's tax free compounding doesn't beat a 50% MTR of a RRIF, but I do know the tax rate on the early part of a career are usually a lot lower, and increase as you move through your career. So for myself, I"ll stick with my feeling that if I knew then what I know now, I may have not gone the RRSP route. How great would it have been to have had the TFSA for those 40-50 years of contributions. I can't imagine the government won't eventually want to tap the TFSA's.

ltr


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## steve41 (Apr 18, 2009)

The TFSA and RRSP are a virtual saw-off.


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## humble_pie (Jun 7, 2009)

Eclectic12 said:


> Not sure one can assume this.
> 
> "Pass through the estate" seems to mean making the TFSA beneficiary the estate. This means it would be included in the estate, which may be increasing the probate taxes.
> 
> ...




excellent point re probate, many thankx!

i'm from a province that does not have incremental probate fees so i tend to overlook. When i posted i was thinking only of income tax payable as of the deceased's final tax return.

residents of provinces with tiered estate probate fees should certainly be on their toes about your message.

i'm not !00% clear on what happens in quebec with TFSA bequests to designated legatees including spice. I found this. It says can roll to spouse, with limitations. However, cannot roll directly into any other legatee's TFSA, save & except to the extent of that legatee's available contribution room. I'll be looking further into all this.

http://www.epq.gouv.qc.ca/A/Info/questions/faq_celi.aspx


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> I don't really know what tax program you're using, but if I use either my own program or the easier 2017 Tax Tips Income Tax Calculator, and use the following parameters for a 72 year old single pensioner:
> 
> ____________________________________________________
> 
> ...


Thank you for the updated numbers. I was calculating CPP at $1000/mo and OAS at $500/mo.

Including the RRIF withdrawal, I calculate taxes of $23,834 total, average rate 24.45%, marginal rate 43.41%. This, for Ontario. This does indeed negate most/all of the advantage of the RRSP contribution. Point taken.

However....

I would point out two things. First, does a 72 year old single person really need a gross income of $97, 474 annually? This person has not done a good job of planning themselves into this position.

At 72 with a strong income, this person has obviously lost their spouse. It is less likely someone could be single all of their life and end up in this position. That makes this somewhat of a corner case, although I know every couple will end up there. My wife and I appear to be in a good tax position going forward but it gets ugly if one of us passes. This is a position that I have not planned for but I have thought about considerably.

I expect that when she looses me, she will stop travelling. It is likely to become far less desirable to her, anyway. She is more likely to travel to be with her family and friends, than to take expensive touristy vacations. She will be in a much higher tax bracket but I don't expect it will impact her life. I have left instructions for her to donate a significant amount while she is alive, to reduce her taxes and to reduce the burden after we're gone. She loves the humane society so I expect there will be a lot of dogs wearing diamond collars and gold rap-star grills.

One of the assumptions I operate on, which we obviously do not share, is the idea to structure work and income to optimize lifestyle. For those who love their employment and work to an old age, my approach is of no relevance. I believe those days are almost entirely extinct, however. How many people will make it to 65 without being laid off, these days? Not many. Barely any.

We're about 50. I was able to see that continuing to work would put us at a tax disadvantage so I discontinued my employment and ended up getting a contract some time ago. This is working to very good tax advantage.

The point being, instead of marching into a brick wall, I took evasive steps. I can see we will pay more than originally expected on RRIF withdrawals due to a silly market but I expect we will pay less than we saved. Because of the tax disadvantage, I've taken risks in RRSP accounts I have not have taken in TFSAs or unregistered accounts. The person in your example should think this way.

If he has such a high marginal tax rate, he has a 43~52% risk reduction in his RRIF and can structure his investments to take advantage of this opportunity.

My wife just started collecting her pension. It is a multiple of the number in your example. We also have considerable investments, both registered and unregistered. I don't have a pension. I've always taken the commuted value when I've left an employer. I make only dividends now and I can control that with my company. We are in SK where rates are higher than Ontario. ... and we do not have a 51.9% marginal rate. Neither of us had a 43% marginal rate, either. It can be done.


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## AltaRed (Jun 8, 2009)

Tom, the higher marginal rate LTR mentions takes into account OAS clawback due to RRIF income. So it is not just a tax bracket... it is a combined tax bracket (tax rate + OAS clawback).


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> Tom, the higher marginal rate LTR mentions takes into account OAS clawback due to RRIF income. So it is not just a tax bracket... it is a combined tax bracket (tax rate + OAS clawback).


Come on Alta, you can't get creative with tax forms. You pay the taxes you owe. Add a dollar and see how much you pay extra in tax and that's your MTR.

CRA doesn't allow me to distinguish or decide which taxes, credits and deductions that apply to me when I fill out my taxes. You can't decide you don't accept the OAS recovery tax as not applying to yourself, just as you can't decide any other tax does or doesn't apply to you. 

As I said, if I make $1000 interest income and I pay the government $519, then that's 51.9% marginal tax rate. It's not creative, it's a fact.

I think it would be great if you could choose which taxes and credits apply, so you could create your own marginal tax rate. Sort of a pic-and-pay program. 

ltr


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## like_to_retire (Oct 9, 2016)

steve41 said:


> The TFSA and RRSP are a virtual saw-off.


I decide when I withdraw funds from a TFSA. The government decides with an RRSP.

Big difference.

ltr


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## AltaRed (Jun 8, 2009)

like_to_retire said:


> I decide when I withdraw funds from a TFSA. The government decides with an RRSP.
> 
> Big difference.
> 
> ltr


Sort of. You can do as you wish with your RRSP until age 71. After that, they tell you the mininum you have to do to collapse it over time. 

Re: your prior post. It is fair to mention your MTR includes OAS clawback effect. True, there is no choice....but don't get me started on OAS yet again. My belief is obviously OAS is way too rich for well off seniors and so both it, and its effects, should be ignored.


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## Userkare (Nov 17, 2014)

Nerd Investor said:


> It really does depend entirely on your the size of your portfolio, the breakdown between Registered and Non-registered, and any other sources of income in retirement. I think if you were trying your best craft a general rule, what they are saying isn't bad, but I'd add an additional first step/addendum:
> 
> 1st step: tactically withdraw money from registered assets to the extent you can keep yourself in a relatively low tax bracket*
> 2nd step: Then draw additional funds required from your non-registered account (spending the income first)
> ...


That's been pretty much my plan since retirement. I've been chipping away at the least productive, smaller RRSPs, and also taking the monthly interest from HISAs and GICs that pay interest annually. I see the TFSA as 'contingency' funds, so I'm not planning on touching them until I really need to. Once I hit the age that I must withdraw from RRIF, it should be at the marginal tax bracket. When contributing, I always did 50/50 with spousal contributions. Luckily my wife hasn't left me yet, but that's less likely to happen than the government changing their minds and stopping pension income splits - after all, only very wealthy people can save anything for their retirement and we can't give them a tax break .


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> I decide when I withdraw funds from a TFSA. The government decides with an RRSP.
> 
> Big difference.
> 
> ltr


Indeed. Excellent point. Much appreciated. 

I do have quite a few scenarios and calculations to guide us. In 2007, I decided that I would dedicate 2 hours every Saturday morning to scenario planning. Before many Saturdays passed, I was going to the kitchen at 6pm feeling hungry because I had been at the computer since 7am without eating. As much time as I've invested, it has become the single highest return use of time I have had.

I've come to many conclusions:

- It does not make sense to dabble at anything. If you're going to do something, crash headlong into it and go hard. The reason R-E out-strips all but the most wild market returns is because R-E is reliable and is not diluted by monetary devaluations while waiting for the dream market.

- People who tell one thing is clearly better than another are unlikely to have done the research. They are going on gut reasoning.

- Guts suck. That includes mine. I've learned to distrust my gut, as well as the gut of others. This has allowed us to succeed on a far higher level than we would have otherwise. Gut instincts are a good starting point but I'll go with best quantitative forecasts and, when wrong, I will improve the input data to those forecasts rather than guess.

- I'm happy to have a healthy RRSP and I'm also happy to have much of our wealth in R-E holdings. The R-E holdings have a capital gain tax liability but I can control of that to an extent, capital gains tax isn't too crazy anyway, and the money will end up being unregistered which is positive for us.


I read several of you posting adamantly that it is better to forego a guaranteed 45% tax savings during prime earning years than it is to take the savings and then try to organize your financial life to reduce tax later on. I will do my best to respect this position but it defies logic and I think it's unethical to preach this as fact when it simply is not. At least consider pulling back a little from suggesting it to be fact.


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> Come on Alta, you can't get creative with tax forms.


When I was employed, I couldn't declare my income as dividends. That would have been illegal. So, instead of stomping my foot and pouting, I switched to contracting.

You can be very creative when it comes to organizing your life. The tax forms are merely a reflection of your life choices.


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## like_to_retire (Oct 9, 2016)

TomB16 said:


> You can be very creative when it comes to organizing your life. The tax forms are merely a reflection of your life choices.


Good one.

ltr


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## TomB16 (Jun 8, 2014)

Nerd Investor said:


> It really does depend entirely on your the size of your portfolio, the breakdown between Registered and Non-registered, and any other sources of income in retirement. I think if you were trying your best craft a general rule, what they are saying isn't bad, but I'd add an additional first step/addendum:
> 
> 1st step: tactically withdraw money from registered assets to the extent you can keep yourself in a relatively low tax bracket*
> 2nd step: Then draw additional funds required from your non-registered account (spending the income first)
> ...



This idea makes a lot of sense to me. Money should be withdrawn from a RRIF each year, regardless of the need for it. Perhaps some folks are missing the idea that money can be withdrawn and not spent.

We've built our RRSPs too much so, if we were to remain employed until we are 70, we would be slaughtered by the tax code. To the point of ltr and AltaRed, working to 70, we would have ended up paying just as much tax as we saved earlier in life. That's why we aren't working until we are 70... or 60.... I'm 50 now so I hope to have 25 years to drain down the RRSP/RRIF. I plan to make my first withdrawal in January 2018.


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## AltaRed (Jun 8, 2009)

I retired at 57 because I didn't need any more and I was so obsessed with taxes that I got a divorce and did the ultimate 50-50 in asset splitting.....LOL


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> I retired at 57 because I didn't need any more and I was so obsessed with taxes that I got a divorce and did the ultimate 50-50 in asset splitting.....LOL


hehe, funny stuff.

ltr


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## TomB19 (Sep 24, 2015)

Lol!


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## CalgaryPotato (Mar 7, 2015)

Eclectic12 said:


> "Pass through the estate" seems to mean making the TFSA beneficiary the estate. This means it would be included in the estate, which may be increasing the probate taxes.


We don't have probate taxes in Canada? We do have probate fees but those are fixed in half the provinces and at most 1.5% from what I can see... Also you can handle most estates without going through probate at all.


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## AltaRed (Jun 8, 2009)

Are you sure about that? Most provinces have a graduated scale. http://www.taxtips.ca/willsandestates/probatefees.htm Nova Scotia is highest with Ontario and BC next in line.....but still relatively minor.


I'd suggest approximately half of all estates go through probate, e.g. single people with investment and banking accounts or Real Estate, and last to die couples. That said, people get way too wound up on probate taxes. They are not the devil they are made out to be....given the riskier altenatives.


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## Karlhungus (Oct 4, 2013)

TomB16 said:


> I think it's great that you prefer the TFSA and I'm happy it's there for you. It's great that we have options and choices.
> 
> I've run enough scenarios to feel I have a handle on it and it appears to me that using an RRSP is an advantage in nearly every case, with a couple of corner cases that could be easily rectified.


1 million is TFSA vs 1 million in RRSP and you would choose RRSP? Or are you saying you would have more in the RRSP due to reinvesting the deduction make it a more fair comparison ?


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## steve41 (Apr 18, 2009)

The latter.


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## AltaRed (Jun 8, 2009)

Karlhungus said:


> 1 million is TFSA vs 1 million in RRSP and you would choose RRSP? Or are you saying you would have more in the RRSP due to reinvesting the deduction make it a more fair comparison ?


First of all, that is a very inaccurate depiction of a real case. You can only compare on the basis of 'contributions and re-invested tax deductions'. If you could contribute equally to both, you would have a lot more in the RRSP over time because you would also have re-invested your RRSP tax deduction into the RRSP along the way AND gotten a return on that deferred tax within the RRSP. So that RRSP might be closer to $2 million or at least $1.5 million.


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## CalgaryPotato (Mar 7, 2015)

AltaRed said:


> Are you sure about that? Most provinces have a graduated scale. http://www.taxtips.ca/willsandestates/probatefees.htm Nova Scotia is highest with Ontario and BC next in line.....but still relatively minor.
> 
> 
> I'd suggest approximately half of all estates go through probate, e.g. single people with investment and banking accounts or Real Estate, and last to die couples. That said, people get way too wound up on probate taxes. They are not the devil they are made out to be....given the riskier altenatives.


Well it's not a tax, it's a fee. And yeah I agree it's annoying for those provinces that have the percentage. But still a 1.7% fee vs. possibly a 50% tax isn't really the same ball park. 

And you can still do an estate without probate even if it's a single or widowed person. As long as the will is in order. A lot of institutions will try to demand probate but they have no legal need to and you can usually get them to back down on that demand.

Edit....
I will say that I never realized how ridiculous these % probate fees are before today. In Alberta I thought the $525 fee was too much. I can't imagine settling a million dollar estate and having to pay a $17,000 fee. How do they justify that as a "fee"?


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## AltaRed (Jun 8, 2009)

It's called a money grab and the way free-spending provinces pad their coffers. Jus like land transfer taxes in both Ontario and BC. That said, I agree with you that the 'fee' is miniscule relative to income taxes.

Financial institutions will only permit distribution of funds to beneficiaries without probate if it is a small amount, e.g. $20-50k because they could be liable for inappropriate distribution/release of the funds if the Will as presented may not be the latest one, or is not valid. The only way it can be certain that a Will is in order is if it goes through probate (the purpose of probate is for the court to sanction validity of a Will). Try distributing a $100k non-reg investment account from a brokerage/asset management company without probate.


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## pwm (Jan 19, 2012)

Use joint accounts to avoid probate. Both my parents passed on without having a will go to probate and there was a considerable value involved.


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## AltaRed (Jun 8, 2009)

pwm said:


> Use joint accounts to avoid probate. Both my parents passed on without having a will go to probate and there was a considerable value involved.


That is a good process between spouses but not necessarily with other individuals. We've had this discussion before. You'd be surprised at the pitfalls that occur just because someone was too cheap to pay probate fees.

Added: Example: When my father passed, everything was joint with my mother except for land he left my bro and I. Easy peasy.... Now in the case of mother (last to die), it was suggested to us to make her investment accounts JTWROS with her benefificaries to avoid probate. I declined because had my relationship disintegrated with my spouse in the meantime, she could have made a claim on 6 figures in assets in JTWROS accounts in which I was an account holder. That would have been a really stupid move just to avoid some measly probate fees. Every estate/family law lawyer should advise to not be penny wise and pound foolish. There are real life examples of these issues.


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## TomB19 (Sep 24, 2015)

Karlhungus said:


> 1 million is TFSA vs 1 million in RRSP and you would choose RRSP? Or are you saying you would have more in the RRSP due to reinvesting the deduction make it a more fair comparison ?


I would choose the tfsa, just like everybody else.

I thought about just leaving this response at that. Would have been better. Lol!

... But if I could put $1 into an rrsp and also put $0.46 into my tfsa for the exact same amount out of my pocket as putting $1 into a tfsa... And if I was confident I would pay below 35% tax on the rrsp withdrawal down the line, I'd likely go with the rrsp/tfsa combination.


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> I don't really know what tax program you're using, but if I use either my own program or the easier 2017 Tax Tips Income Tax Calculator, and use the following parameters for a 72 year old single pensioner:
> 
> ____________________________________________________
> 
> ...


I just keyed these numbers, verbatim, into TurboTax 2016. TT doesn't calculate marginal rate, apparently. No problem, I'll do it manually.

Without RRIF income -> Total income 66274, Average rate 20%, Tax paid 13054
With RRIF income -> Total income 79474, Average rate 24%, Tax paid 18106

RRIF income = $13200, additional tax = $5052, therefore, the RRIF withdrawal was taxed at 38.27%


Please check your numbers to confirm.


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## TomB16 (Jun 8, 2014)

Here is a screen shot of each scenario.


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## like_to_retire (Oct 9, 2016)

TomB16 said:


> I just keyed these numbers, verbatim, into TurboTax 2016. TT doesn't calculate marginal rate, apparently. No problem, I'll do it manually.
> 
> Without RRIF income -> Total income 66274, Average rate 20%, Tax paid 13054
> With RRIF income -> Total income 79474, Average rate 24%, Tax paid 18106
> ...


You failed to include the eligible dividends of $18000. Don't forget the gross-up of 38% and the DTC (dividend tax credit) as 15.02% of the grossed-up dividends.

If you want to quickly calculate MTR, just add $1000 of interest income and calculate the difference in tax owing.

ltr


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## TomB16 (Jun 8, 2014)

The distributions are there in both scenarios. Calculating the tax differential with and without the RRIF income was an effective calculation of how much tax was paid on the RRIF withdrawal, which is what this whole discussion is about.


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## TomB16 (Jun 8, 2014)

Here is the rest of the input data.


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## AltaRed (Jun 8, 2009)

What I didn't see is a line entry for OAS income T4A(OAS) in any of those calcuations nor the differences in OAS clawback.


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## TomB19 (Sep 24, 2015)

See the above post with attachments. The t4a oas is there. Second last pic.


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## like_to_retire (Oct 9, 2016)

TomB16 said:


> The distributions are there in both scenarios. Calculating the tax differential with and without the RRIF income was an effective calculation of how much tax was paid on the RRIF withdrawal, which is what this whole discussion is about.
> 
> View attachment 15570


Tom, you're not entering the data properly.

See how the dividends are entered into the TurboTax popup. You have to gross the $18000 income by 38%, and then calculate the Federal DTC at 15.02% of the grossed-up amount. Turbo adds them up and shows the total, but separates them in the T1 General as shown in the pictures below. The $18000 dividends grossed-up adds $24840 to the income.

View attachment 15617


Note OAS entry form.

View attachment 15625


View attachment 15633


View attachment 15641


ltr


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## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> Eclectic12 said:
> 
> 
> > ... "Pass through the estate" seems to mean making the TFSA beneficiary the estate. This means it would be included in the estate, which may be increasing the probate taxes ...
> ...


Let me get this straight ... you are arguing that because the probate tax/fee is lower the likely estate taxation rate - just pay instead of avoiding it?
Is there some sort of family dynamic or aim that is making it preferable pay the low fee versus avoiding it completely?

Me, I'd prefer to avoid it completely where possible instead of consoling myself that it is a low fee.


Or is it that the point was that "incontestible golden mantra is that a TFSA can pass through an estate to its heirs with zero taxation" is more of a YMMV situation has been lost?




CalgaryPotato said:


> ... And you can still do an estate without probate even if it's a single or widowed person ...


 ---<<< insert tongue in cheek >>>---

But why bother?
After all, one can tell oneself "it is a low fee" instead of all that extra work from worrying about it.

---<<< remove tongue from cheek >>>---


Cheers


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... i'm not !00% clear on what happens in quebec with TFSA bequests to designated legatees including spice. I found this. It says can roll to spouse, with limitations ...


The way I read the link, it is not so much about limitations as it is about meeting the requirements. It reads more to me more like the TaxTips link that where one misses the paperwork/deadlines - one loses the ability for the spouse to rollover the TFSA.

The link is good news AFAICT as the paperwork for the the TFSA beneficiaries some FIs provided had a note saying Quebec didn't allow the "successor holder" designation for spouse/common-law partner.




humble_pie said:


> ... However, cannot roll directly into any other legatee's TFSA, save & except to the extent of that legatee's available contribution room ...


This matches the other provinces AFAICT ... a spouse/common-law partner are the only ones that have the TFSA rollover available, if they follow the deadlines/file the paperwork. All other beneficiaries receive the to death amount Canadian tax free ... what can be tax free going forward will depend on what their individual TFSA contribution room can absorb.

Basically, it looks like Quebec is requiring a beneficiary be named but is not requiring a spouse be explicitly named as successor holder as some provinces used to require or still do. (I'd have to check by province as I seem to recall some provinces have updated legislation so that the special beneficiary naming is not required).


Cheers


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> ... That said, people get way too wound up on probate taxes. They are not the devil they are made out to be....given the riskier altenatives.


YMMV ... where one is willing for the entire TFSA to go to one person through the estate, I don't see how passing it directly to avoid probate fees is any worse. I would expect it would also lighten the workload for the executor(s).

If there are multiple heirs, it may complicate things though.


Cheers


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## AltaRed (Jun 8, 2009)

Eclectic12 said:


> YMMV ... where one is willing for the entire TFSA to go to one person through the estate, I don't see how passing it directly to avoid probate fees is any worse. I would expect it would also lighten the workload for the executor(s).
> 
> If there are multiple heirs, it may complicate things though.
> 
> ...


I was not talking about the TFSA. Where successor holder is doable, it is a 'no brainer' to do.... Likewise for beneficiary(ies)or for non-spouses. 

I am challenging the assertion that probate can easily be avoided with JTWROS accounts and joint titles. That is true enough but fraught with all sorts of risk and unintended consequences and inherently unwise in many (if not the majority of) situations. A JTWROS account and/or joint title with anyone other than a spouse is inviting unintended consequences in most cases. 

I gave one example where a the separating spouse of a JTWROS account holder includes all or some of the value of that JTRWOS account (to which that separating spouse is not even one of the joint account holders) in the Schedule of Assets. JTWROS accounts and joint titles are undivided interests and the full value of them are at risk, albeit a court would likely allocate the assets equally amongst the number of account/title holders. Bottom line: Use them judiciously AND don't assume the best of motives amongst account/title holders. Unexpected things are likely to happen when money is involved.


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> I was not talking about the TFSA. Where successor holder is doable, it is a 'no brainer' to do.... Likewise for beneficiary(ies)or for non-spouses.
> I am challenging the assertion that probate can easily be avoided with JTWROS accounts and joint titles ...


The way the posts unfolded made me think you were including TFSAs in the comment.

My apologies.


Cheers


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## AltaRed (Jun 8, 2009)

Eclectic12 said:


> The way the posts unfolded made me think you were including TFSAs in the comment.
> 
> My apologies.
> 
> ...


No problem.... Lots of conversations happening


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## like_to_retire (Oct 9, 2016)

TomB16 said:


> therefore, the RRIF withdrawal was taxed at 38.27%
> 
> 
> Please check your numbers to confirm.


Just to back up the values I showed you in the pictures with Turbo Tax, I've attached the same values plugged into Tax Tips Income Tax calculator 2016. You can enter those values to check it out. I like the Tax Tips Income Tax calculator because it's quick and easy, and allows for "what-ifs" on the fly. It agrees with Turbo Tax to the penny.

The first picture I attached is without the $13200 RRIF income, and *results in taxes of $17105*. You can test that out. It's identical to Turbo Tax.

The second picture I attached is with the RRIF income and* results in taxes of $23848*. You can test that out. Again, identical to Turbo Tax.

This $6743 tax increase on the RRIF income of $13200 is a tax of 51.08%.

The marginal tax rate with the RRIF included is 51.9% MTR. This is easily tested by adding $1000 interest income.

So both Tax Tips and Turbo Tax agree.

Without RRIF Income

View attachment 15642


With RRIF Income

View attachment 15650


ltr


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## Joebaba (Jan 31, 2017)

Hi Tom – and cc to LTR,

The reason the MTR looks so high is due to the OAS clawback.

Using LTR’s numbers and the TaxTips calculator
OAS – $7004
CPP - $13370
Dividends - $18000
Other - $6000
Pension - $40000
You get income of $91,214 – tax of $17,216
Then add $13,000 of RRIF payments
You get income of $104,214 – tax of $23,793
So you get an increase in tax of $6,577 on added income of $13,000 – so an MTR of 50.5% - just like LTR says.

BUT
– lets restart and use the same numbers, but put them into different boxes
OAS - $0 (reduced by $7,004)
CPP - $13370
Dividends – $18000
Other - $13004 (increased by 7004)
Pension - $40000
So to start, you get income of $91,214 (same as before) – but tax of only $15,686 (much lower because there is no OAS clawback)
Now add $13,000 of RRIF payments
You get income of $104,214 (same as before) – tax of $21,296
So you get an increase in tax of $5,610 on added income of $13,000 – so an MTR of 43.1%

So now the question is – Is OAS clawback “taxation”? Or are you just giving back what you weren’t eligible for?
I think AltaRed put it well in entry #33 in this thread
http://canadianmoneyforum.com/showthread.php/116441-The-myth-that-Canadians-have-a-high-tax-rate

The 43% MTR is what just about everyone lists as the MTR for people with income at that level.


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## agent99 (Sep 11, 2013)

I may have missed something!

Sure taxes are higher when $13200 of income is added and being "income" it is taxed at a high rate and it affects other benefits/deductions. 

But if there was no RRSP/RRIF surely part of the money that is in the RRSP/RRIF would be in some other account earning income of some type. It couldn't all be in a TFSA. Shouldn't that be considered for any comparison to be useful?


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## AltaRed (Jun 8, 2009)

Non-reg money isn't nearly as tax efficient as either TFSA or an RRSP/RRIF....so it doesn't need to be added to the comparison. That donkey loses the race every time. The whole point of having registered accounts of any kind is to provide a financial incentive to use them.


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## agent99 (Sep 11, 2013)

AltaRed said:


> Non-reg money isn't nearly as tax efficient as either TFSA or an RRSP/RRIF....so it doesn't need to be added to the comparison. That donkey loses the race every time. The whole point of having registered accounts of any kind is to provide a financial incentive to use them.


Of course that is right. But you can't compare a case that has a $250million RRIF with one that doesn't have that money anywhere. Where did it go if not into the RRSP?


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## bgc_fan (Apr 5, 2009)

Not sure if it is worth mentioning, but there has been mention of reinvesting RRSP refunds to increase the return. However, not everyone sees this "refund" particularly if they have no income tax refund coming back to them, i.e. if they haven't had much withholding tax throughout the year. As a result, they would not see this extra money if all the RRSP did was reduce the payable tax.


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## Karlhungus (Oct 4, 2013)

AltaRed said:


> First of all, that is a very inaccurate depiction of a real case. You can only compare on the basis of 'contributions and re-invested tax deductions'. If you could contribute equally to both, you would have a lot more in the RRSP over time because you would also have re-invested your RRSP tax deduction into the RRSP along the way AND gotten a return on that deferred tax within the RRSP. So that RRSP might be closer to $2 million or at least $1.5 million.


Okay, so lets say 1.5million vs 1million. You pull money out of RRSP and it counts toward income correct? You pull money out of TFSA and in does not count toward income correct? Is the argument that the RRSP has grown so much more that is doesnt matter? Even with no GIS and OAS clawback you are still ahead with RRSP?


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## AltaRed (Jun 8, 2009)

agent99 said:


> Of course that is right. But you can't compare a case that has a $250million RRIF with one that doesn't have that money anywhere. Where did it go if not into the RRSP?


It presumably went to a non-reg account...assuming the invidividual had the same discipline investing in a non-reg account. The big differences making the non-reg account inferior is the 'early' payment of income taxes on investment income and lack of investment returns on the annual tax deductions (loan from the gov't) until it has to be paid back. Now one might argue that had all that money actually gone into capital growth assets only over 30 years, there would have been no investement taxes paid along the way. True if indeed an individual did not sell any of those investments along the way. A highly unlikely scenerio.


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## AltaRed (Jun 8, 2009)

bgc_fan said:


> Not sure if it is worth mentioning, but there has been mention of reinvesting RRSP refunds to increase the return. However, not everyone sees this "refund" particularly if they have no income tax refund coming back to them, i.e. if they haven't had much withholding tax throughout the year. As a result, they would not see this extra money if all the RRSP did was reduce the payable tax.


Then why would anyone have taken the tax deduction in the first place if they could not use it? Or why would anyone take the tax deduction until they were at least into the 2nd income tax bracket? Indeed, this is one area where the RRSP is flawed... It doesn't work so well for those in a very low, or zero, tax bracket...who cannot take good advantage of the tax deduction (actually deferment). The TFSA is a much better vehicle for that purpose.


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## AltaRed (Jun 8, 2009)

Karlhungus said:


> Okay, so lets say 1.5million vs 1million. You pull money out of RRSP and it counts toward income correct? You pull money out of TFSA and in does not count toward income correct? Is the argument that the RRSP has grown so much more that is doesnt matter? Even with no GIS and OAS clawback you are still ahead with RRSP?


Maybe, or maybe not. It depends partly on just how well the investment returns were on the tax deduction (loan from the gov't) along the way. For sure, OAS clawback is a strong headwind against a RRSP/RRIF outperforming a TFSA and that might just be enough to tip the scales towards a TFSA. Hence the argument by some people here on why it is more worthwhile to draw down the RRSP/RRIF before OAS starts at 70, and keep the TFSA fully invested. OAS clawback (if you assume it is an entitlement vs social welfare) is an unintended consequence. The issue is situational.


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## bgc_fan (Apr 5, 2009)

AltaRed said:


> Then why would anyone have taken the tax deduction in the first place if they could not use it? Or why would anyone take the tax deduction until they were at least into the 2nd income tax bracket? Indeed, this is one area where the RRSP is flawed... It doesn't work so well for those in a very low, or zero, tax bracket...who cannot take good advantage of the tax deduction (actually deferment). The TFSA is a much better vehicle for that purpose.


I don't think I was clear. The situation I was presenting is one where the person owes much more tax at tax time because he hadn't had much tax withheld throughout the year. So let's say they max out their RRSP and get a $9k tax credit, but owed $10k. He doesn't see the "refund" that can be flipped for further investment. Instead, from his POV, he is out $1k after tax time.


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## janus10 (Nov 7, 2013)

One thing I just thought of - for a rare number of Canadians, they and their spouse are eligible for OAS and individually have high incomes which would exceed the clawback threshold. It may be possible if they have separate RRSPs (and / or separate non-registered accounts) to annually alternate their withdrawal strategy. 

One year, one spouse could withdraw extra from their RRSP while the other withdraws nothing or a much reduced amount. The following year, the other spouse withdraws extra from their RRSP while the first spouse withdraws nothing or a much reduced amount. This way it could be possible for one spouse to NOT suffer from the OAS clawback each year.


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## AltaRed (Jun 8, 2009)

bgc_fan said:


> I don't think I was clear. The situation I was presenting is one where the person owes much more tax at tax time because he hadn't had much tax withheld throughout the year. So let's say they max out their RRSP and get a $9k tax credit, but owed $10k. He doesn't see the "refund" that can be flipped for further investment. Instead, from his POV, he is out $1k after tax time.


Fair enough. I suppose emotionally that person doesn't 'feel' the impact of the tax credit. However, the reality is he'd better have figured it out because without that deduction, he has to find an additional $9k. At least that is the way I'd look at it. I always re-invested that RRSP tax deduction (or in earlier years put it against my mortgage principal) regardless of my April tax owing/refund status.


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## humble_pie (Jun 7, 2009)

janus10 said:


> One thing I just thought of - for a rare number of Canadians, they and their spouse are eligible for OAS and individually have high incomes which would exceed the clawback threshold. It may be possible if they have separate RRSPs (and / or separate non-registered accounts) to annually alternate their withdrawal strategy.
> 
> One year, one spouse could withdraw extra from their RRSP while the other withdraws nothing or a much reduced amount. The following year, the other spouse withdraws extra from their RRSP while the first spouse withdraws nothing or a much reduced amount. This way it could be possible for one spouse to NOT suffer from the OAS clawback each year.



in principle it's a good idea - staggering income - but i don't see how it would work out in practice.

in a non-registered account (para 1 above) there can never be any election about receipt date of taxable income. The income arrives in the account, it's taxable. Doesn't matter whether the investor withdraws the income from the account or not.

it's possible to manipulate the income in a non-registered account via type of investment, though. For example, invest in low-dividend paying stocks while delaying capital gain sales.

in para 2, might you be speaking of RRIF accounts? because it would be rare to find a couple with 2 RRSP accounts where each partner had decided to withdraw from & reduce that account prior to the age of 71.

already the number of investors prematurely reducing their RRSPs prior to age 71 is limited. Statistically, finding a couple where each partner is reducing RRSP must be like finding the proverbial needle in a haystack.

on the other hand, if these are RRIFs the withdrawal is mandatory, a RRIF beneficiary cannot elect not to withdraw.

.


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## janus10 (Nov 7, 2013)

humble_pie said:


> in principle it's a good idea - staggering income - but i don't see how it would work out in practice.
> 
> in a non-registered account (para 1 above) there can never be any election about receipt date of taxable income. The income arrives in the account, it's taxable. Doesn't matter whether the investor withdraws the income from the account or not.
> 
> ...


I think it is quite easy to manipulate income in a *non *registered account. The vast majority of our income in our *non *registered accounts is via capital gains (and losses). We determine when to sell and what to sell. We have no fixed income investments in our non registered accounts, and dividend yield is about 1.5% right now (it was much higher at one point but our structure, and philosophy, has changed quite a bit).

And I guess we are the rare couple as we will be drawing down our RRSP accounts first and I haven't seen a compelling argument for us why we would want to convert them to RRIFs, with their forced withdrawal rate, until the last minute.

I did preface my post that this wouldn't be a common scenario, but only a possible scenario.


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## TomB16 (Jun 8, 2014)

like_to_retire said:


> Tom, you're not entering the data properly.
> 
> See how the dividends are entered into the TurboTax popup. You have to gross the $18000 income by 38%, and then calculate the Federal DTC at 15.02% of the grossed-up amount. Turbo adds them up and shows the total, but separates them in the T1 General as shown in the pictures below. The $18000 dividends grossed-up adds $24840 to the income.


OK. I used the T5 and got the same numbers you did for taxable amount. I also fixed the OAS form but now my total tax is even lower. lol!

I'll sort it out tomorrow. Thanks, ltr.




Joebaba said:


> Hi Tom – and cc to LTR,
> 
> The reason the MTR looks so high is due to the OAS clawback.


Thanks! That is the missing link!

Much appreciated!


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## Joebaba (Jan 31, 2017)

janus10 said:


> I think it is quite easy to manipulate income in a non registered account. The vast majority of our income in our registered accounts is via capital gains (and losses). We determine when to sell and what to sell. We have no fixed income investments in our non registered accounts, and dividend yield is about 1.5% right now (it was much higher at one point but our structure, and philosophy, has changed quite a bit).
> 
> And I guess we are the rare couple as we will be drawing down our RRSP accounts first and I haven't seen a compelling argument for us why we would want to convert them to RRIFs, with their forced withdrawal rate, until the last minute.
> 
> I did preface my post that this wouldn't be a common scenario, but only a possible scenario.



Hi Janus,

We are in the exact same situation as you. We’re 62 and 58 – 100% of our unregistered money is in stocks – so as you say, withdrawals are largely under our control (we do get some dividends yearly, so we don’t control that). We have started to gradually melt down our registered funds in an attempt to smooth out the long term tax hit.

We don’t yet receive OAS (nor CPP). But when we do start to collect OAS, your idea of alternating Registered withdrawals holds water.

You have one small, but significant, typo in your post – you said “our income in our registered accounts is via capital gains” - I think you meant in your Unregistered accounts. I’m not familiar enough with this board yet to know if you can edit your post.

Anyway, I agree that the idea of alternating registered withdrawals is worth looking into.


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## CalgaryPotato (Mar 7, 2015)

Eclectic12 said:


> Let me get this straight ... you are arguing that because the probate tax/fee is lower the likely estate taxation rate - just pay instead of avoiding it?
> Is there some sort of family dynamic or aim that is making it preferable pay the low fee versus avoiding it completely?
> 
> Me, I'd prefer to avoid it completely where possible instead of consoling myself that it is a low fee.
> ...


I'm not sure what you are arguing me on to be honest? Like I said, I'd avoid it if I could in a variable rate province (which again half of the country isn't).

But if you're debating between an RRSP that'll get cashed out at death at possibly 40%+ tax rate, vs. another kind of investment that'll just trigger the probate fee, it should be a no brainer decision?


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## CalgaryPotato (Mar 7, 2015)

AltaRed said:


> Then why would anyone have taken the tax deduction in the first place if they could not use it? Or why would anyone take the tax deduction until they were at least into the 2nd income tax bracket? Indeed, this is one area where the RRSP is flawed... It doesn't work so well for those in a very low, or zero, tax bracket...who cannot take good advantage of the tax deduction (actually deferment). The TFSA is a much better vehicle for that purpose.


A pension is a good example of this though. It's a forced RRSP regardless of what tax bracket you are in at the time of contribution.


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## Joebaba (Jan 31, 2017)

bgc_fan said:


> I don't think I was clear. The situation I was presenting is one where the person owes much more tax at tax time because he hadn't had much tax withheld throughout the year. So let's say they max out their RRSP and get a $9k tax credit, but owed $10k. He doesn't see the "refund" that can be flipped for further investment. Instead, from his POV, he is out $1k after tax time.


Hey bgc_fan,

At a 40% MTR, for this investor to get an RSP credit of $9,000, they would need to invest $22,500 in their RSP.

So scenario #1 – they start with an unregistered account of $1000, and an RSP of zero - they invest $22,500 in their RSP. Next April, they owe CRA $10,000, but they get a tax credit of $9,000, so they still owe CRA $1000. They sell their $1000 unregistered investments to pay their bill.
So they end up with an unregistered account of 0$ and an RSP of $22,500.

Scenario #2 – the same start - an unregistered account of $1000, and an RSP of zero. They invest the $22,500 in their unregistered account. Next April they owe $10,000 to CRA. They get no tax credit. So presumably, to pay CRA, they take this $10,000 from their unregistered account.
So they end up with an unregistered account of $13,500 (1,000 plus 22,500, minus 10,000), and an RSP of 0$.

So in scenario #1 they end up with total accounts of $22,500.
In scenario #2, they end up with total accounts of $13,500.

So even though they didn’t explicitly invest the $9000 credit, in reality they did. It ended up making their total portfolio $9,000 richer.

Note that I’m not suggesting they should, or shouldn’t, choose RSP over unregistered. 
And I also realize that the RSP money has a deferred tax hit coming.
Those are further discussions altogether. 
I’m just saying, they are effectively investing the $9000 credit.


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## Karlhungus (Oct 4, 2013)

AltaRed said:


> Maybe, or maybe not. It depends partly on just how well the investment returns were on the tax deduction (loan from the gov't) along the way. For sure, OAS clawback is a strong headwind against a RRSP/RRIF outperforming a TFSA and that might just be enough to tip the scales towards a TFSA. Hence the argument by some people here on why it is more worthwhile to draw down the RRSP/RRIF before OAS starts at 70, and keep the TFSA fully invested. OAS clawback (if you assume it is an entitlement vs social welfare) is an unintended consequence. The issue is situational.


Why wouldnt you just count reinvestment of the tax deduction as a regular contribution and assume the ROI is the same as your RRSP?


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## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> I'm not sure what you are arguing me on to be honest? Like I said, I'd avoid it if I could in a variable rate province (which again half of the country isn't) ...


It may be the way the points are being intermingled ... my point was in response to the idea that making the estate the beneficiary for the TFSA made no difference to what was paid.

The bits about "fee not a tax" and the size of what was charged seemed to be saying avoiding the estate as beneficiary was not that important.


Cheers


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## Eclectic12 (Oct 20, 2010)

Karlhungus said:


> 1 million is TFSA vs 1 million in RRSP and you would choose RRSP? Or are you saying you would have more in the RRSP due to reinvesting the deduction make it a more fair comparison ?


Maybe .... a major problem with using absolute numbers to compare is that there are many variables that will change the situation that aren't known.

Someone with a small pension who is retiring at 55 that is getting a 40+% refund to be able to withdraw at 20% likely sees value in $1.40+ growing in the RRSP or a combination of the RRSP plus the TFSA versus $1 growing in the TFSA.

Someone with a large pension, a large taxable portfolio, eventually taking a top CPP payment likely would prefer the TFSA.


Then there's whether more home runs were hit in the TFSA so that as TFSA money is spent for living expenses/gifts to the kids - the RRSP withdrawals shuffle over to the TFSA while the income stays relatively flat, at a lower level.


This sort of question has the same challenges are the article from post #1. The variations and possibilities for those who are not tied into a rigid plan can shift what one decides is best. Even then, it is a situation where one will "know" when it likely too late to do much about it.


Cheers


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## TomB19 (Sep 24, 2015)

AltaRed said:


> Indeed, this is one area where the RRSP is flawed... It doesn't work so well for those in a very low, or zero, tax bracket...who cannot take good advantage of the tax deduction (actually deferment). The TFSA is a much better vehicle for that purpose.


I would like to take this opportunity to 100% agree. I've been disagreeable lately so wanted to jump on that. Lol

Last year, a college age person drifted into the investment forum and asked about starting an rrsp, despite having no taxable income. He was advised that he could out $2000 in at any time. It seemed odd that someone would help do such a thing, although far from the worst mistake anyone has made.

An under valued aspect of the rrsp is the sequestration of money. Most people need the money to be somewhat inaccessible or it will vanish. The rrsp works pretty well, in this regard.




CalgaryPotato said:


> A pension is a good example of this though. It's a forced RRSP regardless of what tax bracket you are in at the time of contribution.


For sure and you don't hear many folks complaining that they have a pension.


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## CalgaryPotato (Mar 7, 2015)

TomB19 said:


> For sure and you don't hear many folks complaining that they have a pension.


You do see young people avoiding jobs where they will lose a large chunk of their salary towards pension though. Especially when they don't expect to be in that job for long enough to take full advantage of that pension.


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## AltaRed (Jun 8, 2009)

Karlhungus said:


> Why wouldnt you just count reinvestment of the tax deduction as a regular contribution and assume the ROI is the same as your RRSP?


You can if it really works out that way (meaning the discipline to actually add that amount to one's investment account) but regardless, it will still be subject to ongoing investment income taxation in a non-reg account. Never forget the value of the PV (or FV as you wish) of tax deferment.


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## janus10 (Nov 7, 2013)

Joebaba said:


> Hi Janus,
> 
> We are in the exact same situation as you. We’re 62 and 58 – 100% of our unregistered money is in stocks – so as you say, withdrawals are largely under our control (we do get some dividends yearly, so we don’t control that). We have started to gradually melt down our registered funds in an attempt to smooth out the long term tax hit.
> 
> ...


Good eye, Joebaba - I fixed my typo. Thank goodness my intention was clear, even if my words were contradictory. As I'm sure you know, it isn't whether you withdraw the money from your non registered account that counts as income. Simply selling something will generate the capital gain/loss even if you just leave the proceeds in the account.

Just wanted to clarify that in case someone reading would be confused between registered and non registered accounts.

So, will you be deriving the vast majority of your income from withdrawing from your RRSPs, with a small portion from your dividends in your non registered account and no pension?


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## TomB19 (Sep 24, 2015)

CalgaryPotato said:


> TomB19 said:
> 
> 
> > For sure and you don't hear many folks complaining that they have a pension.
> ...


Wow. I've never heard of that before.


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## heyjude (May 16, 2009)

CalgaryPotato said:


> You do see young people avoiding jobs where they will lose a large chunk of their salary towards pension though. Especially when they don't expect to be in that job for long enough to take full advantage of that pension.


In the mid 1980s I had a choice of two six month job contracts, one of which was considered temporary and nonpensionable. If I took that job I could reclaim 90% of my previous pension contributions. At the time, I had been working for 5.5 years, and had plans to emigrate at the end of the next contract. I figured that leaving the pension money in the fund would mean I would never have access to it. I also needed the money for my move. So I took the temporary job and the refunded pension contributions. No regrets.


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## bgc_fan (Apr 5, 2009)

Joebaba said:


> So in scenario #1 they end up with total accounts of $22,500.
> In scenario #2, they end up with total accounts of $13,500.
> ....
> I’m just saying, they are effectively investing the $9000 credit.


Good argument. The thing is, from a marketing perspective, the saying has always been, contribute to RRSP and take your RRSP refund to invest or pay down your mortgage. Unless they are diligent and understand that the $9k was already refunded as less tax to pay, they may think that it is all a lie as they still pay $1k in taxes and wonder where this RRSP refund went.


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## Karlhungus (Oct 4, 2013)

Eclectic12 said:


> Maybe .... a major problem with using absolute numbers to compare is that there are many variables that will change the situation that aren't known.
> 
> Someone with a small pension who is retiring at 55 that is getting a 40+% refund to be able to withdraw at 20% likely sees value in $1.40+ growing in the RRSP or a combination of the RRSP plus the TFSA versus $1 growing in the TFSA.
> 
> ...


Okay but why make things more complicated then they have to be? In the debate of TFSA vs RRSP keep things simple! Theres no point in arguing a potential home run in the TFSA and not the RRSP. Whats the point of bringing that up.


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## Karlhungus (Oct 4, 2013)

AltaRed said:


> You can if it really works out that way (meaning the discipline to actually add that amount to one's investment account) but regardless, it will still be subject to ongoing investment income taxation in a non-reg account. Never forget the value of the PV (or FV as you wish) of tax deferment.


IF someone has the discipline to invest in the first place, im sure they would have the discipline to re invest their tax deduction. If they didnt, TSFA wins anyway.


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## Joebaba (Jan 31, 2017)

bgc_fan said:


> Good argument. The thing is, from a marketing perspective, the saying has always been, contribute to RRSP and take your RRSP refund to invest or pay down your mortgage. Unless they are diligent and understand that the $9k was already refunded as less tax to pay, they may think that it is all a lie as they still pay $1k in taxes and wonder where this RRSP refund went.


Ahhh - gotcha. I understand what you're getting at.

Joe


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## Eclectic12 (Oct 20, 2010)

Karlhungus said:


> Okay but why make things more complicated then they have to be?


I am not trying to complicate it so much as give an idea of the wide variation that can affect who might prefer which of the two registered accounts.




Karlhungus said:


> ... Theres no point in arguing a potential home run in the TFSA and not the RRSP. Whats the point of bringing that up.


Then you likely haven't seen the posts/articles saying one should take more risks in the TFSA as any winners are Canadian tax free. 

Some did this to have a large TFSA in a few years. It is variable as I am more conservative so this doesn't apply to me but as I say, those who did may have a different view of what their options are and what they will do. http://www.moneysense.ca/save/investing/tfsa/the-biggest-tfsas-in-canada/


Cheers


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## kcowan (Jul 1, 2010)

the sequestration of money mentioned by Tom can be a huge incentive to create an RRSP. It is never mentioned. But that account is always the last to be tapped in an emergency.


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## AltaRed (Jun 8, 2009)

I agree that is a huge driver and what is needed for most to remain that disciplined.


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## ian (Jun 18, 2016)

The answer really depends on one's personal situation.

I believe that the big challenge is that some people are incredibly lazy when it comes to their personal financial planning. Others place false trust on that smiling face in the bank. I really believe that many put money into an RRSP because of the tax refund, because their friends and relatives do, or in reaction to the usual Feb. advertising campaign.

They give little thought to tax brackets, current and future, spousal or non spousal, etc. Like sheep they go to their financial institution and buy something that they do not understand. They don't understand that there are often management fees as high as 3 or 4 percent, that there is a huge difference in the treatment of investment income and capital gains. They just plunk the money down, walk away, and wait for the tax refund so that they can pay down their credit card balance.

So consider this. No wonder there may be a retirement crisis in the future. Pension plans are going away, fewer people are using RRSP's.....and many of those who do use RRSP's are not using them effectively. The latter is just one reason why Canadian bank stocks are such good investments.


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