When it comes to taxes, retirement is a whole new ballgame. Unlike when you're working a regular job, your income during retirement often comes from various sources, and not all of them have taxes automatically taken off the top. This can lead to a bit of a tax puzzle for retirees. Let's break it down in simpler terms.
As a retiree, your income comes from several sources. Some of the common sources are Canada Pension Plan (CPP), and Old Age Security (OAS). When applying for them, you can set up instructions on how much tax you would like taken out before the money is paid to you. That being said, at tax time, CRA will look at how much taxes were taken at source and compare it to how much you needed to pay. That difference is settled either when you pay at tax time or receive a tax refund.
Similarly, certain retirement investment funds, like RRIF’s, have a certain requirement for tax taken at the source. The minimum tax that can be taken at the source is 10%. That being said, the higher you withdraw from these accounts, the higher the minimum requirement to withhold taxes.
The main reason someone would owe taxes at the end of the year is because they didn’t withheld enough at source. When you have multiple sources of income, planning for how much tax should be withheld at source is a part of your Financial Planning in retirement.
If you've noticed that the withholding tax on your pension, or another source seems low, it's because it's based on the assumption that you have no other income. So, depending on your situation, it might need adjusting.
Everyone in Canada gets a certain amount tax-free income. The tax-free basic personal income for 2023 is $15,000 Federally. Provincial amounts vary for different provinces. There could be a balancing act that your planning team can help with to maximize these amounts every year.
Navigating taxes in retirement could be a bit of a puzzle, especially because you have more control over it than working years. With the help of your planning team, and some fine-tuning, you could make sure you’re making the most of your retirement income without any surprises come tax time. If you are needed some guidance around planning for your retirement, click here to schedule a free consultation.
- Jai Gandhi, Investment Advisor
Jai Gandhi is an Investment Advisor at Endeavour Wealth Management with iA Private Wealth, an award-winning office as recognized by the Carson Group. Endeavour Wealth Management provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Jai Gandhi who is a Investment Advisor for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained here in may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
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