Imagine that you worked hard all your life and you managed to save some money for your retirement. The money you saved could be from your employer’s pension plan, RRSPs, etc. The time has finally come for you to retire and when you’re filing your income taxes, you find out that you owe the government a lot of money. How did this happen?

The problem is that many Canadians are not aware of the dangers of saving money in a registered plan such as employer’s pension plans, RRSPs, etc. Take this example:

You retired at age 65 and you worked for a company for 20 years. You contributed to your employer’s pension plan and RRSPs during that time. You are also eligible for government plans such as the Quebec Pension Plan (QPP) and Old Age Security (OAS). Your income from QPP and OAS is $15,000/year. Your salary just before you retired is $50,000/year. You own a rental property which brings $20,000/year. You also have $200,000 saved in your RRSPs and $100,000 saved in your employer’s pension plan. You determined that you only need $35,000/year to survive comfortably.

Problem #1: When filing your income taxes in the year that you retire, you must claim a taxable income of $85,000 instead of $70,000 because your taxes are based on all your income such as your salary, rental property, including QPP and OAS. You have been put into a higher tax bracket without warning which means you owe more taxes.

Problem #2: After paying your first tax bill when you retire, you get another unpleasant surprise. From age 66-70, you claim $35,000 as taxable income (since your income is only from QPP, OAS, and the rental property). There will come a time when you have no choice but to withdraw money from your registered plan (for example, you must start making withdrawals from your RRSPs when you turn 71). The minimum amount you’re allowed to withdraw from your RRSPs is $14,760 (based on government rules). You now must claim a taxable income of $49,760 (Note: I’m not taking into account the amount saved in the employer pension plan therefore taxable income is higher than $49,760). Once again, you have been put into a higher tax bracket without warning which means you owe more taxes.

This is a very common problem that many Canadians face. Every situation is unique but I can help. Call now for your FREE, NO OBLIGATION, consultation and learn ways to reduce or eliminate your tax bill at retirement.

514-578-7673 or j.r.advice101@gmail.com

• Location: Montreal
• it's NOT ok to contact this poster with services or other commercial interests