Author Topic: Transfer Values for Pensions  (Read 520 times)

Canadian Ben

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Transfer Values for Pensions
« on: September 29, 2017, 12:44:53 PM »
Howdy all!

I was wondering if anyone had already been in a situation where they left a DB pension program and had to take a LIRA portion, and a Transfer value that is taxed. When speaking with the pension person, they indicated that the transfer value would have a withholding of 30% if it was above 15k. To me, that sounds like the 30% is simply an estimate, and if the person had no income/super high income, the 30% wouldn't necessarily be valid. Anybody seen anything on how that would be taxed?

The other point is taxation timing. Do you get taxed the moment you receive the money, or from when it was due? In other words, if you retire in december, can you then receive the money in january, and claim in in the new tax year, (Hopefully while having no other income to reduce taxes?)

The Fake Cheap

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Re: Transfer Values for Pensions
« Reply #1 on: September 29, 2017, 04:42:55 PM »
Usually withholding taxes are at a set rate.  So if you are being paid an amount of 10-20K, 10% is withheld, 21-30K 15% is held etc (these are just random examples).  I'm not sure when it would have to be reported on your inc tax, but this seems like information I would double and then triple check.  I've seen a lot of people make bad, or unthought out, mistakes.

Canadian Ben

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Re: Transfer Values for Pensions
« Reply #2 on: September 29, 2017, 04:58:47 PM »
Guess I'll probably have to call CRA, as the pension people had VERY untrusworthy answers: Well, I see here on this page it says this.... Yes... I feel so secure with that level of detail, since we know the tax code is one of the simplest documents...

Mr. Rich Moose

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Re: Transfer Values for Pensions
« Reply #3 on: September 29, 2017, 05:46:27 PM »
Howdy all!

I was wondering if anyone had already been in a situation where they left a DB pension program and had to take a LIRA portion, and a Transfer value that is taxed. When speaking with the pension person, they indicated that the transfer value would have a withholding of 30% if it was above 15k. To me, that sounds like the 30% is simply an estimate, and if the person had no income/super high income, the 30% wouldn't necessarily be valid. Anybody seen anything on how that would be taxed?

The other point is taxation timing. Do you get taxed the moment you receive the money, or from when it was due? In other words, if you retire in december, can you then receive the money in january, and claim in in the new tax year, (Hopefully while having no other income to reduce taxes?)

The excess portion is taxed as regular income on your tax return. I had mine transfered straight into a RRSP account. I had to show them proof that I had enough RRSP room and there was no withholding for tax liabilities.

I had to claim it on my tax return and got the slip the tax year the payment was actually made, not the year I "quit".
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Canadian Ben

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Re: Transfer Values for Pensions
« Reply #4 on: September 29, 2017, 07:46:55 PM »
Ah Mooseman. Was wondering if you were aware of this type of thing. Love your blog by the way. Especially the last one making fun of the problems with the liberal tax cuts... as if they were going insane with power

That fits with what SISIP (military financial advisors) told me, but was contradicted by the pension lady who didn't seem to be very aware of her stuff. Out of curiosity, how did you get enough RRSP room? at 3k a year, i'd have to work for a longggg time and it would never catch up to the size of the transfer value (benefit yearly is higher than RRSP room that appears)

Mr. Rich Moose

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Re: Transfer Values for Pensions
« Reply #5 on: September 30, 2017, 07:53:11 AM »
Ah Mooseman. Was wondering if you were aware of this type of thing. Love your blog by the way. Especially the last one making fun of the problems with the liberal tax cuts... as if they were going insane with power

That fits with what SISIP (military financial advisors) told me, but was contradicted by the pension lady who didn't seem to be very aware of her stuff. Out of curiosity, how did you get enough RRSP room? at 3k a year, i'd have to work for a longggg time and it would never catch up to the size of the transfer value (benefit yearly is higher than RRSP room that appears)
Thanks! Haha I got some flak from friends for that topic. Especially the accountants and business owners. But the accountant pointed out I wasn't wrong about the effects on moderate income business owners which was contrary to what he was led to believe by his firm (a larger national firm).

I had a bunch of RRSP room built up from my previous employment, so that's how I was able to do it.
If you're married, you can contribute to your spouses account if she's got room. She can complete a T1213 to reduce her taxes throughout the year.
Another option like you said would be timing the payment into a year you have no other income. Bonus points if you have Canadian dividend income you can use to offset the tax bill.

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Canadian Ben

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Re: Transfer Values for Pensions
« Reply #6 on: September 30, 2017, 10:24:57 AM »
That's the plan: Fill out my paperwork really slowly in 2020 so that I get it in 2021, don't work that year and try and max out leveraged investments w/ dividends as they will be useful in the future, since my taxation will be close to/below 0%. I.E. HELOC, and Smith Maneouver. (I thought of spousal RRSP last night, but since I'm single, not going to aim for that one yet.)

Can you claim opening the accounts as part of the investment losses? or just the interest on the loan? And does balance transfers count as interest loans? It is costing for example 0.99% to borrow 10k for a year....
« Last Edit: September 30, 2017, 10:30:26 AM by Canadian Ben »

Mr. Rich Moose

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Re: Transfer Values for Pensions
« Reply #7 on: September 30, 2017, 01:41:18 PM »
That's the plan: Fill out my paperwork really slowly in 2020 so that I get it in 2021, don't work that year and try and max out leveraged investments w/ dividends as they will be useful in the future, since my taxation will be close to/below 0%. I.E. HELOC, and Smith Maneouver. (I thought of spousal RRSP last night, but since I'm single, not going to aim for that one yet.)

Can you claim opening the accounts as part of the investment losses? or just the interest on the loan? And does balance transfers count as interest loans? It is costing for example 0.99% to borrow 10k for a year....
Don't forget that a spousal RRSP affects the contributor's RRSP room, not the benefactor. So if you were married by 2021, you would want to max your RRSP and then contribute the rest to hers and she gets the tax deduction, lowering your family's overall tax bill.

You can't claim account fees not related to advice. Interest where the proceeds are used to invest can be deducted. Interest fees on credit card or LOC balance transfers would normally not be unless you can demonstrate that the funds related to the transfer and loan were directly used for investing. You should have a clear paper trail to support that.
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