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Tips

 

Cashing in RRSPs
 

Taxpayers should be aware that it is a legal requirement for your financial institution to withhold taxes on RRSPs that are withdrawn. Tax will be withheld as follows:
 

  • 10% on amounts up to $5,000

  • 20% on amounts $5,000 - $15,000

  • 30% on amounts over $15,000

Therefore, if there is an emergency and you must withdraw funds from your RRSP, you may want to consider withdrawing funds in amounts under $5,000 so that only a 10% withholding tax is applied. If you do this, you should be aware that any tax shortfall will have to be made up in April when you file your personal tax returns.

 

For example, if your marginal tax rate is 30% and you withdraw $4,000 in RRSPs, the withholding tax will only be $400 (that is 10% of $4,000). In April of the coming year, you will owe an additional $800 on this RRSP withdrawal (that being 30% x $4,000 less the $400 already withheld).

To learn more about withdrawing funds from your RRSPs, please give us a call.

NOTE: The Shannon & Company 'Tips' are NOT intended to cover all tax issues. You should talk to your Shannon & Company professional before making any decisions regarding the information found here.

 

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