Q&A: RRSP Withdrawals

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Here, a reader worries about excessive taxes on her retirement savings.


Q – I would be grateful if you could answer my questions about the withholding tax on RRSPs. I was taken aback to find that the $400,000 portfolio I had built up over 20 years, by means of a defined contribution company pension plan, would be reduced by 30% on withdrawal. When I read about company and group RRSPs there is never any mention of this percentage. My annual income will not exceed $40,000 when I start to withdraw. Why do I have to pay 30% and also be taxed on the balance that I take in each year? I am surprised that there never seems to be any transparency about this level of taxation in literature about RRSPs. – Clare B.


A – There may be some confusion in your question. For starters, RRSP withdrawals (along with RRIF and pension plan payments) have always been taxable. You received a tax deduction at the time you made the contribution so you’re expected to pay tax at the time of withdrawals Tax-Free Savings Accounts are different – no tax deduction, no tax on withdrawals.

The 30% figure appears to relate to the withholding tax on withdrawals over $15,000. This is withheld at source, but is not the actual tax you pay. That will be based on your income and marginal tax rate. If your rate is less than 30% you’ll get a refund; if it is more you’ll be assessed additional tax at the time of filing. So the 30% (or less if the withdrawals are smaller) is effectively a down payment on your tax bill. – G.P.


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