via Advisor.ca | June 6, 2014
Many clients assume money put into RRSPs will stay there until retirement. That’s the goal, but life isn’t always so tidy.
People who blindly contribute, without thinking about whether they’ll need the cash before turning 65, are doing themselves a disservice because withdrawals trigger steep withholding tax:
10% on amounts up to $5,000;
20% on amounts from $5,000 to $15,000; and
30% on amounts over $15,000 (note, rates are different in Quebec).
Worse, CRA will tax your client at her marginal rate if it’s higher. So, if she pulls $35,000 from her RRSP to pay for her daughter’s wedding, it’s taxed as income.
Many now opt for TFSAs or non-registered accounts to fund these short-term cash needs. But these aren’t the only times clients should steer clear of RRSPs. Here are four more.