How does withholding tax work when I unwind my RRSP? + MORE Dec 17th

When will Ottawa take a tax cut of your RRIF withdrawals and what you should do about that. (Flickr)
Q. “What is the withholding amount on RRIF withdrawals and how should I plan my retirement income with this in mind. I’m confused.” – Margaret
It’s good to understand withholding taxes on RRIFs when you’re doing your retirement planning. I’ve outlined some key things to keep in mind that should help you Margaret. Here they are:

Withholding Tax the RRIF Way

RRSPs are tax-deferred savings accounts. Income tax is refunded based on the amount contributed on your highest dollars earned (the marginal tax rate). Then when you withdraw the RRSP/RRIF savings, the plan is to pay tax at a lower tax rate. This is the RRSP tax game played over decades. The higher the rate when contributing vs when drawing, the better.

Working Years
Retirement Years

Contribute for Savings
Withdraw for Income

During Income Earning Years
During Lower Taxable Years (Retired)

Tax Deferred at over 35% (approx)
Tax Paid at under 20% (approx)

 
Now let’s focus our attention on a single calendar year while retired…

You want a bigger nest egg? That is usually the one that grew with small fees. (Flickr)
Consider two Canadians saving for retirement. Both are clients of the same big bank (in our example it is RBC but it could be any of them). Each has built up $50,000 in RRSP savings over the past several years and each is ready to make a fresh $10,000 RRSP contribution.
Here is what Client A does.
He goes to his nearby RBC branch and meets with his advisor. After discussing his long-term objectives, risk tolerance, etc., the advisor recommends Canada’s largest stock mutual fund, the RBC Canadian Dividend Fund. As represented by its management expense ratio, or “MER”, this fund charges 1.76% annually in fees and other costs.
The fund’s largest stock holding include some very familiar Canadian companies. Here are eight of the top 10 stocks held by the RBC Canadian Dividend Fund, as of the end of October:

RBC
TD Bank

Scotiabank
CN Rail

Enbridge
Bank of Montreal

TransCanada Corp.
Manulife

Now for Client B…

 
My New Year’s resolutions often go something like this. First, I promise to lose the few extra pounds I’ve put on. That’s followed by a vow to improve my finances and these days, it’s usually to monitor my savings habits so I stay on track to saving more for retirement But this year, for everyone making a New Year’s resolution to do better with their money, there’s another option to the old go-to method of scheduling an appointment with your financial planner. That option is a new robo-planning service that’s simple, quick and affordable while also being customized to answer your specific money questions.
This past fall, that new option started to be offered by Rona Birenbaum, and Seyon Vasantharajan. Robo-planner site Viviplan.ca offers to answer your personal finance questions—and it’s all done online, with no push to buy financial investments of any kind. “I think it’s a business model that will appeal to people since it complements robo-advisor investment services,” says Birenbaum, a certified financial planner who founded the firm Caring for Clients almost two decades ago…

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