Mortgage withdraw question

New to the forum looks great so far.
My question is I'm thinking about withdrawing 27000 from my rrsp, I know probably bad idea but its not doing much and I kind of regret putting it in there.
So if I do this it will add to my yearly income and put me in another tax bracket, does this mean my whole income will be taxed at that rate or just the additional income?
Something tells me its the whole income... I know i really suck at money seems like an obvious question but I don't know the answer.

Someone told me at one point you need rrsp, now I wish i just dumped it on my mortgage.

Thanks

Actually your RRSP money is doing something - growing your money for your retirement funds someday in the future. It may not seem important now but it will in the future.
If you were to take $27000 there would be withholding tax of 30% or $9000 you are now left with $18000. The $27000 is added to your other income for income tax purposes. This may push you into a higher bracket and you could end up owing more tax when you file

You can look up the tax tables for your province. The first amount of income is taxed at the lowest rate, the next amount of income at a higher rate etc. Your whole income is not taxed at the higher rate. If you really do decide to take the money out to pay down your mortgage consider taking some out in 2014 and the rest in early 2015 if this is to your advantage tax wise-but check if you have to pay fees for each withdrawal.

Your income is charged tax in brackets. So your total income is not subject to one tax rate but a few of them, each of which increases as your income increases. If you search income tax brackets you will find the table that lays them out for you. Also, don't forget that these are not charged on your gross income, but on your taxable income.

Morningstar has a tax estimator here.

Under the Home Buyers Program (http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html) the limit is $25,000

As others have mentioned, the tax rate does not apply to the whole income, just the income over a given threshold. Commonly believed that it applies to the whole income - hence the built-in fear of changing income brackets.

I can't tell you if it is a bad idea to take it out or not without knowing your age, income, marital status, investment position, and so on. Similarly it depends on when you made the contribution (if it was for the 2014 tax year, it will make your taxes look as if you never made the contribution).

The question that you really need to ask is this - "why do I want to take the money out of the RRSP?".

You allude to the fact that "it is not doing much", implying that you believe that it could be earning more. You can make it earn more without withdrawing it, by changing the instruments into which you have invested. No withdrawal required for this solution, just move the money into something else. This is the typical feeling felt by people who allowed the bank to talk them into a "high interest" savings account that earns only 1% or so. You can do better, but then there are risks. You can get some ideas by reading up on "couch potato portfolios".

As far as the income tax on the withdrawal is concerned, most Canadians don't realize one important fact: RRSPs don't save tax, they defer tax. People should be required, by law, to write out "RRSPs don't save tax, they defer tax" on a blackboard 100 times before they put money down. There are cases where RRSPs are good ideas, and cases where they are bad ideas. But banks always act like they are always good ideas.

But remember one thing - if you take the money out of the RRSP, you can't put it back in.

Quote:

---

Originally Posted by okjello

New to the forum looks great so far.
My question is I'm thinking about withdrawing 27000 from my rrsp, I know probably bad idea but its not doing much and I kind of regret putting it in there.
So if I do this it will add to my yearly income and put me in another tax bracket, does this mean my whole income will be taxed at that rate or just the additional income?
Something tells me its the whole income... I know i really suck at money seems like an obvious question but I don't know the answer.

Someone told me at one point you need rrsp, now I wish i just dumped it on my mortgage.

Thanks

---

There is a withholding tax held back by your financial institution , when you withdraw from your RRSP.

Withdraw only in chunks of only $ 5,000 at a time a few days apart , so the withholding tax is only 10 % each time and not more for higher amounts.

Ofcourse later on when you file your taxes you might owe more or less than the withholding tax deducted by your financial institution from your RRSP withdrawal.

You will get a T4 RSP slip at the end of the year , when you withdraw RRSP money. You need to use that to file your income tax return .

----------------------------------------------
http://canadianfinanceblog.com/withh...p-withdrawals/
How Much Withholding Tax Will You Pay?

Since withdrawn RRSPs are considered income in that year, the withholding tax is similar to your employer withholding a portion of your income to submit for your tax obligations.


There are three levels of percentage withheld, depending on the amount of your withdrawal:

• Up to $5,000 will have a 10% (5% in Quebec) withholding tax

• $5,001 to $15,000 will have a 20% (10% in Quebec) withholding tax

• $15,001 or more will have a 30% (15% in Quebec) withholding tax

Quote:

---

Originally Posted by tjthemanto

There is a withholding tax held back by your financial institution , when you withdraw from your RRSP.

---

To be picky, this is a withholding, not a separate withholding tax. The government is just attempting to get some of the income tax that you would pay on your withdrawal when you make it. It is much like the deductions made off your paycheque - withholdings are made as the money is received, that is used as a credit on the actual income tax payable.

Some taxpayers will still have to pay on top of the withholding, while others will receive some or all of the withholding back when the taxes are filed.

Great replies, many thanks.

Reply's answer my question, I should have added I was looking to use the rrsp to clear up some bad dept, I have very good credit so my bad dept isn't terrible Ccard but it has accumulated over time. We still make the bills but I think I really just need to budget from our income, with using debit cards its easy to over spend your income. With my job I should have a pension, but you never know now days. I was thinking it might be worth the hit to clear up some of that bad debt and free up some monthly income. I have never done a budget sounds crazy as I write that as I'm sure most people know exactly where there money is going, not me though. Good point on the withdraw some on 2014 and then some in 2015 I think this would keep me at the lower tax rate.

I did see the federal tax rate and provincial are different brackets just to add confusion i guess:)

Thanks again for the reply's, I will read some more on the forums and maybe pick up some good habits. Mortgage is up for renewal this spring so im sure there are some good tips in here. I used to be loyal to my back TD but I think a person really need to shop around, one would think having all your services at a bank for 20 years would mean something it doesn't seem so.

Someone mentioned age I'm 39, that sounds bad when I type it also!

Thanks
Mark

Quote:

---

Originally Posted by brunt

As others have mentioned, the tax rate does not apply to the whole income, just the income over a given threshold. Commonly believed that it applies to the whole income

---

I am sorry I don't understand the "just the income over a given threshold" part. Can you try and explain this again. Thank you.

Federal tax rates for 2014

• 15% on the first $43,953 of taxable income, +
• 22% on the next $43,954 of taxable income (on the portion of taxable income over $43,953 up to $87,907), +
• 26% on the next $48,363 of taxable income (on the portion of taxable income over $87,907 up to $136,270), +
• 29% of taxable income over $136,270.

In other words your first 43,953 of taxable income is taxed at one rate, the next 43,954 at another rate etc.There are also provinical taxes to pay on top of these rates. Hope that helps.

Thank you! Now, I understand.