Originally posted by liloldme
So just to clarify...those of you who pulled your 401k's out...how did you manage the huge tax hit on that? Or did you just take the loss anyway? I
have a bit in RRSP (Similar to a US 401k) that I am worrying about. I could pull it out today but would take a 30 - 40% loss on it to tax. So I'm
thinking take a 40% loss right now because I'm afraid I might take a 40% loss later? I dunno.
Ugh, RRSP's... bloody government invented cash grab.
The problem with RRSP's that people are finding out is that when it matures into RIF's, the banks determine a monthly amount that you will
automatically receive based on an amortized calculation over X number of years (your expected remaining years to live... usually calculated to around
the age of 76). This means that if you have a good pension and a massive accumulated amount in RRSP/RIF's that have now matured, the amount you
receive from your RIF's could now put you in a 50% tax bracket, where as you were only getting a tax break of 30-40% during your working years while
you were investing.
The government knows this and that's why they set it up that way.
I've had many seniors sit in my office bawling their eyes out because they ended up owing huge chunks of money when filing their tax returns. It's
a horrible sight to see, and there's nothing these poor buggers can do about it after the fact.
If you want to pull your RRSP's (which I strongly advise) just look at it this way: The money that's sitting in there is earnings that you haven't
yet paid the tax on. So in reality, you need look at the amount with the knowledge that 30-40% (depending on your tax bracket) of it is not yours and
never has been.
Just keep in mind that if you want to pull your RRSP's the bank will only take 10% tax off the top and will leave the rest for you to pay at the end
of the year when you file your tax return. So depending on your living situation (dependent spouse, children, or other various taxable income
deductions) you may be able to get away with not owing a huge chunk of tax at the end of the year.
Otherwise ask the bank to deduct 30% instead of the standard 10%.
Also keep in mind you will only be able to cash out the principle amount and not the interest earned. Any interest earned is locked in permanently
until it matures into a RIF. That's the way the ball bounces with RRSP's.
I've advised people for years to stay away from the RRSP scam and to, instead, invest their monies into something that they can control the ins and
outs themselves like short-term GIC's, instead of the banks controlling your investment.
Anyways, don't fret about the tax slap if you want to pull your RRSP's... a chunk of it was never yours to begin with.
Hope that helps you in your decision making.