Monday, April 20, 2020

Worried about Your RRSPs Tanking? So is CRA

It’s tough to watch your hard-earned savings dwindle in the COVID-19 stock market crash, particularly if you’re retired or getting close to retiring. For this older crowd, retirement savings mostly means declining RRSPs or RRIFs. But I have some good news.

When you withdraw from your RRSP or RRIF, the amount becomes taxable income for the year. This leads to paying income taxes on the withdrawal. Suppose you’re destined to pay 25% tax on your withdrawals. Then you might as well think of your RRSP or RRIF as being 75% your money and 25% CRA’s. CRA is right there beside you watching its share bounce up and down over the years.

So, if you’ve seen your tax-deferred savings drop $100,000 recently, only $75,000 of it is your loss. The remaining $25,000 is CRA’s loss. Focusing on CRA’s loss might make this whole experience a little less painful.

Many thanks to Justin Bender at PWL Capital for inspiring this article when he told me “During the March 2020 downturn, I didn't read a single article saying [what is explained here].

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