Registered Accounts

Question 1

What is the early RRIF formula?

Answer 1

1/(90-age) x Market Value of RRIF

Question 2

What are the RRSP withholding tax rates for early withdrawals?

Answer 2

1. Up to $5,000 = 10%
2. $5,000 - $15,000 = 20%
3. $15,000 + = 30%

Question 3

Given an after-tax dollar amount, how do you calculate the required RSP withdrawal rate?

Answer 3

After-tax amount required/(1-average tax rate)

e.g. If you require $70K after-tax and your average tax rate is 40%, you are required to withdraw $116,667

$70,000/(1-0.40) = $116,667

Question 4

How does a pension adjustment affect RSP contribution room?

Answer 4

RSP Contribution Room = 18% of earned income from prior year (max. 30,780)

Minus Pension Adjustment (PA)

PA = 9 x pension earned in year - $600

Question 5

When can you unlock 50% of your LIRA and what are the consequences?

Answer 5

1. At age 55.
2. 50% of the LIRA converts to a LIF and you are required to make withdrawals.
3. 50% of the LIRA can be rolled into an RRSP.

Question 6

What is the HBP?

Answer 6

The home buyer’s plan is for eligible first-time home buyers.

It allows you to withdraw $60,000 ($120,000/couple) from your RRSP to purchase your first home. This limit applies to withdrawals made after April 16, 2024.

You are required to repay the withdrawal over a 15 year period. Repayment commences the second year after withdrawal.

Question 7

What happens when you over-contribute to your RRSP or TFSA?

Answer 7

RRSP - You have to pay a tax of 1 percent per month on your contributions that exceed your RRSP deduction limit by more than $2,000.

TFSA - there is no $2,000 grace amount but the penalty is 1% on the over-contribution per month.

Question 8

Why is advantageous to hold US/foreign equity within an RRSP or LIRA?

Answer 8

You do not pay withholding tax on US/foreign equity in a LIRA or RRSP. This rule does not apply to a TFSA.

Question 9

What is an RDSP?

Answer 9

Registered Disability Savings Plan.

Lifetime Limit = $200,000

Contributions are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.

Upon withdrawal, taxable amounts include: grants, bonds, and interest earned on investments.

The maximum rollover amount from an RRSP is $200,000. A grant will not be paid on rolled over amounts.

E.g. $200,000 from an RSP of a deceased relative is rolled over tax-free into and RDSP with a value of $0.

Question 10

What are the RDSP rollover rules?

Answer 10

Allow for a rollover of a deceased individual’s registered retirement savings plan (RRSP) proceeds to an RDSP of the deceased individual’s financially dependent child or grandchild with an impairment in physical or mental functions.

Question 11

What grants are available for RDSPs?

Answer 11

Maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime.

A beneficiary’s RDSP can receive a grant on contributions made until December 31 of the year in which the beneficiary turns 49.

Question 12

How are RDSP grants calculated?

Answer 12

Amount of Canada disability savings grant when the beneficiary’s adjusted family net income is $106,717 or less:

• on the first $500 contribution—$3 grant for every 1 dollar contributed, up to $1,500 a year
• on the next $1,000 contribution—$2 grant for every 1 dollar contributed, up to $2,000 a year

Amount of Canada disability savings grant when the beneficiary’s adjusted family net income is more than $106,717:

• on the first $1,000 contribution—$1 grant for every 1 dollar contributed, up to $1,000 a year

Question 13

When does the Canada Disability Savings Bond get clawed back?

Answer 13

$34,863 or less (or if the holder is a public institution)—Bond $1,000

between $34,863 and $53,359*—Part of the $1,000 is based on the formula in the Canada Disability Savings Act

more than $53,359*—No bond is paid

Question 14

What rollover opportunities between spouses exist for a RRIF?

Answer 14

Named Beneficiaries:

Spouse or common-law partner = tax deferral

-Spouse can transfer proceeds into their own RSP or RRIF without affecting contribution room

Successor Annuitant = tax deferral

• Spouse takes over account

Question 15

Are there tax deferral opportunities for LIFs between spouses?

Answer 15

Yes.

LIF may be paid out as an unlocked lump sum after your death, or may be transferred to your spouse’s own RRSP or RRIF if the transfer is permitted by the federal Income Tax Act.

Question 16

What happens when a RRIF beneficiary is a financially dependent child or grandchild?

Answer 16

Buy a term annuity and pay tax on the payments they receive. Transfer it tax free to their RRSP.

Question 17

What is an FHSA?

Answer 17

First home savings account.

This account combines the benefits of an RRSP and TFSA. Growth/withdrawals are tax-free and contributions are tax-deductible.

Lifetime max = $40,000
Annual contributions = $8,000

Question 18

What happens when you transfer the commuted value of a pension to a LIRA?

Answer 18

In many cases, the maximum transfer value imposed by the Income Tax Act will prohibit the full value of your entitlement from being transferred to a LIRA on a tax deferred basis.

The balance is paid out as a taxable lump sum.

Amounts outside the maximum transfer value can be sheltered from tax if you have RRSP contribution room.

Question 19

What important factors should be considered when deciding between a defined benefit pension and the commuted value?

Answer 19

1. Financial stability of employer.
2. Early retirement/pension income splitting (if transferred to a LIRA you have to wait until age 65 for splitting)
3. Pension adjustment reversal.
4. Partial unlocking.

Question 20

What is a pension adjustment reversal and how does it affect an RRSP?

Answer 20

A PAR results when the pension adjustments reported while earning benefits after 1989 are greater than the commuted value actually paid out for those benefits.

A PAR restores RRSP room equal to that difference.

This restored RRSP room allows you to avoid taxes on some or all of the lump-sum amount not normally transferable under the maximum transfer rules.

Question 21

What is a DPSP?

Answer 21

A deferred profit sharing plan.

Contributions are tax-deductible for the employer and employees do not pay tax on contributions. Investments grow tax-deferred.

DPSP funds (once vested) can be transferred into an RRSP without triggering tax.

Question 22

What is the 10 Year/Proportional Repayment Rule for RDSPs?

Answer 22

If there were any government grants or bonds deposited into the RDSP within the last 10 years*, withdrawals will not be allowed without having to pay some of those grants and bonds back.

The proportional repayment rule means that for each $1 withdrawn from an RDSP, you will lose $3 of any grants or bonds paid into the plan in the previous 10 years as they will need to be repaid to the government. All personal contributions and interest earned are considered the property of the beneficiary and will not need to be repaid to the government at any point.

The only limit to how much money you would have to repay is the *assistance holdback amount. All personal contributions and interest earned are considered the property of the beneficiary and will not need to be repaid to the government at any point.

Question 23

What is the penalty for early withdrawal from an RDSP?

Answer 23

Early withdrawals mean that funds are withdrawn from an RDSP before the year in which the beneficiary turns 60. These withdrawals may or may not come with a penalty. This will depend on the last date any government contributions were deposited into the account.

Because the RDSP is intended to be a long-term savings plan, there are penalties for withdrawing before 60. The penalties come from what is called the 10 Year /Proportional Repayment Rule.

Question 24

What is the maximum bond available for an RDSP?

Answer 24

20,000 max
1,000/year

No contributions required (income tested)

<$35K income = full benefit