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Attacking the RSP (RRSP meltdown)

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RRIFmetic will always shelter the RSP when is there is both RSP and nonreg capital available to draw from.

This is the normal advice planners give... when both registered and open funds are available in retirement, always attack (draw down) the non reg funds first. How then, do we cause our RRSP to be 'un-sheltered'..... pulling it down instead of the nonreg capital?


Simple... there are several ways, the easiest is as follows...

Go to "type" in the RRSP section at the left/top of the Capital frame.

Click on type.... a menu will pop up. The items on this menu which apply to attacking the RRSP are "CAP", "CAP+1%", "CAP+2%", "10%" and "20%".

Here is what they do.

CAP will 'cap' the RSP, that is it will pull down just enough to keep it from growing. It takes out the amount of the growth. (If there was $100K in the RSP and it was growing at 5%, it would deplete the RRSP by $5,000)

CAP+1% will take down an extra 1%. i.e. if the RSP had 100000 and the rate were 6%, then the forced RSP withdrawal would be 7% or $7000. (the RSP would diminish)

10% will draw down the RSP at a 10% rate...etc.


There is another method you can use to draw down the RSP or cause the RSP to not shelter/grow as much... either reduce the RSP contributions or, in the extreme case, use NEGATIVE RSP contributions.

Normally, RRSP contributions are meant to be just that... contributions. However, you can reduce them by entering a number less than the MAX amount, and if they are negative then money will be forced out of the RRSP. (these must be while the reg funds are still RRSP, not RRIF)


Finally, there is a method of killing off the RRSP all at once..... enter a "-1" in the RSP contribution. Important.... this must be prior the RRIF age as well!


Note.... the argument for attacking the RRSP early, is that it will lessen the tax effect the large RRSP will impose in later years.

It is not as simple as that. Remember, those large tax payments are happening far out in time. When you offset the near term low tax payments with those far term high tax payments it turns out to be a smarter move to shelter.

It is the present value of all those future tax payments (including the tax on estate) which must be minimized. however if your client wants to.....

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