RRSP Meltdown in Canada Explained

[@beachesfinancialgroup]

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[@James_48]

My parents only withdrew the minimum from their RRIFs annually under the advice of their “advisor”. When they passed (three months apart) the amount of tax was staggering, as was the knowledge they needlessly lived a very modest retirement. Very frustrating.

[@beachesfinancialgroup]

That is very frustrating to hear. You save all your life and then when it comes to enjoying you don't even get a chance to.

[@garth217]

It's always a balancing act... save for a rainy day or live well while you can. I just finished my aunts estate, she pretty much lived on GIS, small CPP and OAS. Then when we did her estate we found out she had over $100 k in investments from an inheritance she got decades ago. I would have liked it if she would have spent all of the money.

[@garth217]

Good video One thing I've noticed is the RRSP meltdown and delay of CPP to 70 works best for people who have a substantial amount of RRSPs. I only have a modest RRSP, not anything close to the one in this case study. My income will come from my Defined Benefit Pension. Im starting CPP at 61 and will have 4 years of CPP that i currently don't need which will go into my TFSA. At 65 my bridge Benefit drops off and then CPP combined with OAS will put me ahead of my current income by about $5000. RRSP withdrawals are play money only. TFSA is for emergency expenses

[@beachesfinancialgroup]

Fair enough @garth217 the RRSP meltdown is not for everyone. It is really only for those that are concerned about the amount of tax they will pay should they pass away early. It sounds like in your situation though that your pension will make up the bulk of your income so focusing on a RRSP meltdown is not as important. Thanks for sharing.

[@billyrock8305]

Great presentation 👍

[@beachesfinancialgroup]

Thank you as always. Get outside and enjoy this cracking weekend!

[@billyrock8305]

@@beachesfinancialgroup You too!! ☀️

[@SunriseSurvivor]

Excellent information!

[@beachesfinancialgroup]

Thank you @SunriseSurvivor

[@jimjackson4256]

You should be able to keep your rrsp as long as you like and withdraw from it as circumstances arise rather than being forced to withdraw at a mandated rate whether you need the money in that particular year .That would be a real self directed retirement plan and you are taxed at the top marginal rate when you die and your estate is wound up anyway. People should write to the finance minister to have the law changed from the rif way it is now.If you could get the law changed that would be an extremely efficient use of your time.

[@beachesfinancialgroup]

Thanks for your comment @jimjackson4256 ... I do agree with your thoughts. There was some talk a few years ago about extending the minimum withdrawal age but it seemed to fall by the wayside. I can see that happening in the future. I would not be so optimistic on the forced mandate to withdraw once that age is reached, I don't know the exact numbers but that is a lot of yearly tax revenue that would be postponed until an unknown date in the future.

[@jimjackson4256]

@@beachesfinancialgroup I don’t really care about postponement of taxes I am concerned about not having the money when or if i get super old. The withdrawal rates in your 80s and 90s would knock your socks off and no one except in unusual circumstances could hope to replace the money you are forced to withdraw. Being A 90 year old and broke i can’t imagine is too much fun and being forced to withdraw ever increasing amounts from a rif would do that.I guess a good question is how is it a self directed retirement plan if the govt mandates what you must withdraw.There is zero self direction at that point. Maybe you could do a piece about this and ask your viewers to write to finance minister asking her to amend the rules so you can leave the money in your rrsp as long as you like and withdraw the money as you see fit not what they say. That would be freedom for many Canadians so we will see just what the govt thinks of economic freedom for Canadians.Thank you

[@odeteoliveira1617]

With meltdown if we withdraw from RRSP but reached the maximum from TFSA will we not pay a lot of taxes every year if the money is invested in a non registered account?

[@beachesfinancialgroup]

Depends on how you invest it and your tax rate. You will pay taxes on it but whether it is a lot or a little depends on multiple factors. I factored in the additional taxes in the illustrations but this was a generalization. Do you have specific goals for maximizing your estate?

[@odeteoliveira1617]

You right it depends on the investment and tax rate. The goal is always save on taxes. Thank you

[@KP-uj1wf]

Great video! I'm 65 with a defined benefit government pension along with a smallish ($100k) RRSP. I actually still have a $40k RRSP deduction limit if I want to use it on my 2024 taxes. Question... Is it worth using this $40k, then moving my RRSP to a RRIF in 2025? Or forget about it and convert my $100k RRSP to a RRIF this year and starting minimum withdrawals in 2025? (PS.. I'm holding off taking CPP and OAS for 5 years). I realize you can't give specific answers... just a general comment about adding to my RRSP before changing to RRIF would be greatly appreciated. Thanks!

[@beachesfinancialgroup]

@KP-uj1wf thank you, glad you enjoyed it. A few questions for you. Did you just retire or have you been collecting the defined benefit pension all year? How much is your income for this year? Do you have a TFSA or available TFSA room? Hard to say either way without knowing more information. If you would rather not broadcast your personal details over the KZbin comments section (don't blame you) then feel free to email me [e-mail] and I would be happy to give you my two cents worth there. Have a good evening.

[@KP-uj1wf]

@@beachesfinancialgroup thx Chris. I just sent you an email. KP

[@garth217]

If you want to start drawing money right away..I wouldn't flip it into an RRSP..nice tax break but the more you put into the RRSP/ Riff the more money you have to take out annually. 5% of 100 k vs 5% of 140k. TFSA is the way to go

[@iany2448]

Have planned on withdrawing from RRSP up to the OAS claw back threshold. Is there a case where paying some OAS recover tax to further reduce final balance of RRIF makes sense?

[@beachesfinancialgroup]

Hard to say for sure without knowing your situation but as a generalization, unless you have a significantly shortened life expectancy I wouldn't consider it. You will most likely be better off in the long run leaving the funds in the RRSP to grow tax deferred,

[@alexanderalexander7404]

You ask, "Who doesn't want to give less to the CRA and more to one's kids?" Me! I don't intend to give to either of them. CRA may be able to force me to give some to it, but I will labour to give them as little as possible. As for kids. I am not their personal welfare state. Once they turned 18 they are on their own- sink, or swim. They will not receive a penny from me when I die. I am not their own personal lifelong Santa Clause.

[@beachesfinancialgroup]

Fair enough, most people probably wouldn't take that stance but each to their own. Anything special you want to do with the money while you are still alive?

[@jean-marcfiliatrault266]

Something appears fishy between your scenarios 1 and 2. In scenario 1, your taxable income is $74,768 with all your income being fully taxable (.e. No capital gains or dividends). In scenario two, your taxable income is $120,000, again 100% taxable. This tells me that your going to pay now a lot more taxes with scenario 2 than scenario 1. Therefore, you seem to forget the concept of time value of money. Chandler, in his 2022 report on RRSP meltdowns, commented on that. Said otherwise, it does not make sense to take out of your RRSP more money than you need on a yearly basis, unless you still have some room left in your TFSA. Not sure this is the case here at the $33,232 level ($120,000-$74,768). Sooo, sure. Your giving less money to CRA at time of death, but you are giving more during your retirement years… Not sure where the breakeven point is in this situation.

[@beachesfinancialgroup]

Thanks for your comment. This example was together on the basis that the excess funds would be transferred to TFSA every year. I would agree that when it comes to melting down the RRSP and putting the funds into a non-registered account it isn't quite a straight cut answer and I highlight this at the end of the video. On the taxes, the focus is more on the after tax estate but I would be happy to discuss with you further. Please feel free to email me [e-mail]