Q&A: RRSP withdrawals

Question: I have about half of my savings in an RRSP. I’m 61 years old and have an adequate pension right now. I’m concerned about withdrawing from my RRSP and paying taxes. What is the best way to go about withdrawing and when should you start? I’d like to be able to take it out in a tax-efficient manner. – Rosalind

Gordon Pape answers: At this point, I wouldn’t worry about it. You have 10 years remaining before you have to wind up the RRSP – the cut-off is Dec. 31 of the year you turn 71. Just leave the money in the plan and allow it to grow tax-sheltered over that time. And who knows – perhaps in the interim some government will extend the life of RRSPs, as some lobby groups have been suggesting.

If you have a good pension and don’t need the RRSP money now, there is little sense in incurring unnecessary taxes by starting withdrawals early. One of the basic rules of investing is to allow tax-sheltered money to grow for as long as possible. Yes, you will have to pay taxes on the RRSP withdrawals at some point in the future but that’s a long way off. I suggest you focus more on optimizing the return within the RRSP, consistent with keeping risk low.

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