Cashing in an RRSP to pay down your

My_question_is: Canadian-specific
Subject:        RSP's
Expert:         taxman at centa.com
Date:           Thursday November 02, 2006
Time:           09:33 AM -0500
QUESTION:
I have a RSP worth about $40,000 and I am receiving Canada Pension and
Goverment Pension. I am been told that I should take all my RSPs and either
spent or pay down my small mortgage before I turn 65 as I would only lose on
my OAS. My private pension reduces with the start of OAS at 65. What would
you advise and what are your feelings toward paying down mortgage.
----------------------------
david ingram replies:
In general, I am in favour of cashing in the RRSP, paying the tax and
getting rid of the mortgage.
However, it is a relatively simple calculation.
Make a spread sheet and do four or five years of sample tax returns in
advance to see what happens both ways.
It is the only way to be sure.
For instance, if you are paying $3,000 a year in interest and your taxable
income is $40,000 a year, you have to earn $4,000 and pay $1,000 tax to have
$3,000 to pay the interest.
However, it is likely better to take $14,000 out of the RRSP a year for
three years than cashing it all at once.
Do a spread sheet and get the figures clear.
----------------------------
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