How AI Legalese Decoder can Simplify the Process of Withdrawing from and Recontributing to RRSP in the Same Year
- May 22, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Leveraging Unused Contribution Room Before Becoming a Non-Resident
Here’s the situation, I have about $40k of unused contribution room in my TFSA, and $31,560 of unused contribution room in my RRSP (the max for 2024). I also have > $100k in the RRSP itself. I will be leaving Canada in about a month and will become an emigrant and non-resident for tax purposes.
My work status and income changed this year and so my Canadian income that will be subject to tax this year is significantly lower than prior years and I am also expecting that I will receive a tax refund when I fill out my 2024 tax return next year.
Now, I would like to leverage the TFSA room I have but once I leave Canada and become non resident for tax purposes I will no longer be allowed to contribute to the TFSA. I will however still be able to contribute to the RRSP while the room is available.
I have some cash that I plan to put in the TFSA before leaving Canada but it’s not $40k. I do anticipate having enough extra cash on hand to contribute the remaining amount after leaving Canada and sometime before March next year.
### How AI Legalese Decoder Can Help
1. **Automated Calculations:** AI Legalese Decoder can help you calculate the tax implications of your RRSP withdrawal and provide you with a breakdown of the mandatory withholding amounts.
2. **Regulatory Compliance:** The AI tool can ensure that you are in compliance with Canadian tax laws and regulations when making contributions or withdrawals from your TFSA and RRSP.
3. **Decision Support:** By analyzing your financial data and goals, AI Legalese Decoder can offer insights into the best course of action to optimize your tax situation before becoming a non-resident.
Can I do the following?
1. Withdraw $31,560 from my RRSP.
This will be subject to mandatory withholding of $7,468:
– 10% on the first $5,000 withdrawn
– 20% on the next $10,000 withdrawn
– 30% on the remaining $16,560 withdrawn
So I will receive roughly $24,092 cash and my income for 2024 will increase by $31,560 ($63,120 including the withheld amount).
2. Before leaving Canada, take the $24k received from the RRSP withdrawal above, add $16k from cash savings that I have on hand, and max out my TFSA.
I will now have $40k in my TFSA account that can grow tax-free even while I’m outside Canada.
3. After leaving Canada but before Feb 28, 2025 use my existing 2024 RRSP contribution room and deposit $31,560 in my RRSP account (even while I’m a non-resident).
4. When filing my 2024 tax return next year, my income from Canadian sources that I have to pay taxes on will include the $31,560 that I withdrew from the RRSP, but I will also be able to deduct the $31,560 contribution that I made to the RRSP before Feb 28, 2025. Therefore, the net effect from the RRSP withdrawal/contribution will be zero and I should expect to receive the $7,468 that was withheld as a tax refund on top of the refund I was already expecting to receive.
**Does the above sound right? Is there a better way to go about it?** Another option I have is to get a personal loan and pay it back, but there’s a risk I might not get it approved and interest rates are currently high.
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Title: How AI Legalese Decoder Can Simplify Legal Documents
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The RRSP withholding doesn’t go by “on the next”. If you withdraw $31,560 the entire amount would be subject to the 30% withholding.
When calculating your tax for 2024 remember to consider that your basic personal amount will be prorated to the number of days that you were a Canadian resident.
TFSA may grow tax free in Canada, but check wherever you are moving to. For example, a TFSA is not recognized in the US, so any earnings inside the TFSA would be taxed there.