Personal Finance

RRSP, withholding tax and income tax

  • Last Updated:
  • Dec 16th, 2019 11:08 pm
[OP]
Sr. Member
Nov 9, 2008
598 posts
169 upvotes
Ottawa

RRSP, withholding tax and income tax

I may want to withdraw some money from my RRSP as my income is a bit lower this year.

- is the withholding tax an additional tax or a penalty on top of the usual income tax? or is it just a different -and more confusing- way of saying I will prepay my income tax at the time of my withdrawal, and everything will be adjusted once I file my taxes? For example, I could get the withholding tax back if my income is very low...and I may need to pay more income tax if the RRSP withdrawal puts me into a higher tax bracket.

This got way more confusing when I saw the different percentages for withdrawing $5k, 10k..

Thanks!
9 replies
Member
Jul 29, 2007
234 posts
86 upvotes
Markham
Just usual income tax. As you said, it's a prepayment which will be adjusted when you file your tax return.
Deal Addict
Mar 8, 2013
2617 posts
1333 upvotes
d5486 wrote: ...and I may need to pay more income tax if the RRSP withdrawal puts me into a higher tax bracket...
Not just if the withdrawal puts you in a higher tax bracket. If you withdraw $5000 or less, only 10% will be withheld so you will almost certainly pay more. The best way to be sure of the real cost is to run the 'what if' through tax software, when it becomes available before the end of the year.
Deal Fanatic
Feb 4, 2015
5941 posts
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Canada, Eh!!
akaManny wrote: Not just if the withdrawal puts you in a higher tax bracket. If you withdraw $5000 or less, only 10% will be withheld so you will almost certainly pay more. The best way to be sure of the real cost is to run the 'what if' through tax software, when it becomes available before the end of the year.
Good idea.

I actually use prior year software and using existing tax file I rename it as Estimate and update for current year amounts. Unless there have been major tax changes this will give you good idea.
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Deal Addict
Mar 8, 2013
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georvu wrote: Good idea.

I actually use prior year software and using existing tax file I rename it as Estimate and update for current year amounts. Unless there have been major tax changes this will give you good idea.
I am not familiar with the tax changes this year, but you are correct that prior year software will help.
Jr. Member
Sep 10, 2017
172 posts
163 upvotes
Others are correct saying the withholding tax is not an additional tax, it's just a pre-payment, and you can get a good idea with previous year's returns.

For a quicker and easier estimate you could also use simpletax's calculator (https://simpletax.ca/calculator).
Plug in your employment income as usual, plug in RRSP withdrawals as negative "RRSP deduction", and plug in the combination of taxes paid from employment and withholding taxes paid under "Income taxes paid".
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Mar 10, 2018
3721 posts
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centre of universe
bipster wrote: Others are correct saying the withholding tax is not an additional tax, it's just a pre-payment, and you can get a good idea with previous year's returns.

For a quicker and easier estimate you could also use simpletax's calculator (https://simpletax.ca/calculator).
Plug in your employment income as usual, plug in RRSP withdrawals as negative "RRSP deduction", and plug in the combination of taxes paid from employment and withholding taxes paid under "Income taxes paid".
agree. Also note its $5000 is removed then you get $5000-10%. And when you file next year this will be counted. bot the tax and this income. So that link will be helpful.
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Newbie
Nov 30, 2011
90 posts
6 upvotes
SCARBOROUGH
Are you penalized for pulling money out of your RRSP?
Deal Addict
User avatar
Dec 24, 2007
1317 posts
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BC
surfer007 wrote: Are you penalized for pulling money out of your RRSP?
Not for tax reasons, but depending upon where you invested your money a bank or other financial institution may charge you a fee for early withdrawal. You'll have to check with whoever that you invested your money with.

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