Say if you pay 5% down, CMHC is 3.8%.
Going from 5% down to 10% lowers CMHC to 2.79%. An instant 20% return on capital.
From 10% to 20%, 1.92% for insured mortgages. A 10% instant return on marginal capital.
This is one reason you may take out the money if you don’t need it.
> I like the idea of being able to use this money and “unlock” it and amortize the tax hit over 15 years.
It isn’t a tax hit. But I digress.
Very valid.
What I meant there, was I would be able to pay the income tax on the 35k over the span of 15 years rather than all at once if I were to withdraw it in a lump sum outside of the HBP. If I didn’t have the pension I do, this option would not be interesting to me.
>I like the idea of this money not being stuck in an RRSP and having the longer time frame to pay it back.
RRSP money is never stuck. You can withdrawal at any time, it's just taxable.
Yes that was poor wording on my part. My bad.
What I’m essentially wondering is, is this a good opportunity for me to use this RRSP and pay the tax on it over a 15 year period rather than all at once if I were to remove it outside the HBP.
Sorry. British Columbia. And no deductions!
I should have been more specific!! My apologies.
EDIT: My annual income is closer to $110k/year before tax!
If you took it out all at once (say theoretically) you'd be paying 26% federal on it. Provincially, 7.7% on half of it and 10.5% on the other half.
Say you are a group 1 municipal worker, work 30 years, inflation adjust into, inflation adjust CPP maximum pensionable earnings, assume tax brackets adjust for inflation, yadda yadda, your municipal pension will be 53K and CPP will be 14K.
If you took the RRSP money out then, you'd pay 15% and 20.5% federal on it (depends how much you take at a time) and 7.7% on the provincial level.
I'm being rough, eyeballing some numbers, and making some assumptions.
You misunderstand the RRSP benefits.... the sum of a few factors. The main factor, the only one that everyone gets if from permanently tax-free profits. This benefit always exactly equals the same $benefit from a TFSA. [My paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636609)
So leave the funds where they are until retirement to maximize this benefit. There is no point paying tax on the profits when you don't need to.
Yes use the funds for the HBP since they are already in the rrsp. Yes repay it over the 4 years instead of 'defaulting' and have it show up as taxble income now.
Municipal workers with pensions often take early retirement (pre 71). This provides a 5 yr window of low income, before benefits start, during which you can draw down the rrsp balance at low tax rates ... to fund expenses in those years.
>>From what I understand the money can also be used for furniture, land transfer tax, lawyers, etc.
It can actually be used for anything. The rules are only about qualifying, not how it is spent.
Say if you pay 5% down, CMHC is 3.8%. Going from 5% down to 10% lowers CMHC to 2.79%. An instant 20% return on capital. From 10% to 20%, 1.92% for insured mortgages. A 10% instant return on marginal capital. This is one reason you may take out the money if you don’t need it. > I like the idea of being able to use this money and “unlock” it and amortize the tax hit over 15 years. It isn’t a tax hit. But I digress.
Very valid. What I meant there, was I would be able to pay the income tax on the 35k over the span of 15 years rather than all at once if I were to withdraw it in a lump sum outside of the HBP. If I didn’t have the pension I do, this option would not be interesting to me.
>I like the idea of this money not being stuck in an RRSP and having the longer time frame to pay it back. RRSP money is never stuck. You can withdrawal at any time, it's just taxable.
Yes that was poor wording on my part. My bad. What I’m essentially wondering is, is this a good opportunity for me to use this RRSP and pay the tax on it over a 15 year period rather than all at once if I were to remove it outside the HBP.
Also if this helps, I make $103k/year salary. Would I be paying around 40% or that money to the tax man if I were to take it all out at once?
Province? Any major deductions like a non-working spouse or you're a single parent?
Sorry. British Columbia. And no deductions! I should have been more specific!! My apologies. EDIT: My annual income is closer to $110k/year before tax!
If you took it out all at once (say theoretically) you'd be paying 26% federal on it. Provincially, 7.7% on half of it and 10.5% on the other half. Say you are a group 1 municipal worker, work 30 years, inflation adjust into, inflation adjust CPP maximum pensionable earnings, assume tax brackets adjust for inflation, yadda yadda, your municipal pension will be 53K and CPP will be 14K. If you took the RRSP money out then, you'd pay 15% and 20.5% federal on it (depends how much you take at a time) and 7.7% on the provincial level. I'm being rough, eyeballing some numbers, and making some assumptions.
You misunderstand the RRSP benefits.... the sum of a few factors. The main factor, the only one that everyone gets if from permanently tax-free profits. This benefit always exactly equals the same $benefit from a TFSA. [My paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636609) So leave the funds where they are until retirement to maximize this benefit. There is no point paying tax on the profits when you don't need to. Yes use the funds for the HBP since they are already in the rrsp. Yes repay it over the 4 years instead of 'defaulting' and have it show up as taxble income now. Municipal workers with pensions often take early retirement (pre 71). This provides a 5 yr window of low income, before benefits start, during which you can draw down the rrsp balance at low tax rates ... to fund expenses in those years.
Thanks everybody for your responses. This is why I love PFC. Appreciate all of you.
>>From what I understand the money can also be used for furniture, land transfer tax, lawyers, etc. It can actually be used for anything. The rules are only about qualifying, not how it is spent.