Picture this. A mom has saved $1 million in her RRSP. Her kids know it is there. They think it will really help them one day.
Then she passes away. And that $1 million drops to about $464,000.
How can that happen? When the last spouse dies, the whole RRSP counts as income in one year. That pushes it into the top tax rate. In BC, that rate is about 53.5%. So the government takes a huge bite all at once. Tony calls this the “RRSP time bomb.”
In the video, Tony compares two people. Each has a $1 million RRSP. Each takes out $100,000 a year to live on.
Person 1 has no plan for tax deductions. Over 16 years, they pay about $1.3 million in tax. Their kids get $464,000.
Person 2 uses tax deductions from their other investments. They also use their personal exemptions. This lets them slowly “melt down” the RRSP. They move some money into a regular account each year, where growth is taxed less.
The result? Over the same 16 years, Person 2 pays only about $160,000 in tax. Their kids get about $840,000. Add up what they spent and what they left behind, and it comes to about $2.4 million. That is almost double Person 1.
Same start. Very different ending.
The secret ingredient is time. The sooner you plan, the more you can keep.
Is your RRSP a time bomb? Watch the clip. Then book a call with us, and we will look at your plan together.
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This post is general information only. It is not tax or investment advice.
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