Keeping your RRSP as an RRSP provides flexibility to manage withdrawals when you having other income sources that are variable. Once you RRIF you cannot “un-RRIF” and taxable income will be generated each year by the minimum required withdrawal. Be sure you are not likely to return to work or have any other type of significant income like a large capital gain before converting your RRSP to a RRIF before age 71. Again, this doesn’t mean that you don’t owe tax, but rather you could use other funds to pay the tax rather than from the RRIF. If you do this and only withdraw the minimum amount required, then there is no withholding tax at all. The last thing to note is that you can convert your RRSP to a RRIF before age 71. Make sure you have the funds to cover the balance. Therefore, cashlfow planning around RRSP withdrawals is important, especially if you owe more than the tax withheld at source on the withdrawal. Withholding tax is a prepayment of tax only. Remember tax withheld at source is not necessarily the amount of tax that is actually payable on your income earned.
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