Anyone who cashes in RRSP’s generally owes taxes. The RRSP’s are included in your taxable income. If you take out $5,000 or less, only 10% will be withheld for taxes. For amounts between $5,000 and $15,000, 20% will be withheld. Any amount over $15,000, 30% will be withheld. When the RRSP’s are taxed at these rates they are not taking into account your other income for the year.
Some people think they are beating the system by taking out $15,000 in three $5,000 chunks, with the result being that only $1,500 taxes are withheld (Our lowest marginal tax rate is 22%). They have to pay the difference upon filing their taxes, generally making them owe thousands in tax. At Catherine Barrie Accounting we want to make sure your taxes are reasonable and manageable for your income.
People are often surprised with the amount of taxes they owe from RRSP’s because many believe they have paid the tax on them when they cashed in their RRSP`s. The taxes withheld are rarely enough and if not managed correctly can lead to a large balance owing.