How to gift RRSP’s without the tax hit

If you are thinking of gifting your adult children money this Christmas from your RRSP’s, financial planner Renee Rebelo joined us with some tips on how to do so without taking a tax hit.

Rebelo says there are many ways to give a financial gift. One way is through experiences with family.

“I have one client who, every year in December, she comes in and we figure out the amount of money she will take out from her RRIF (Registered Retirement Income Fund) and then she uses that money to take her family on a vacation,” said Rebelo. “She has amazing relationships with her grandchildren because she even went one step further to take one child per year on the trip of their choice.”

Rebelo says people will pay tax, but she notes that many people who do this find they don’t need the money and decided to give an experience over gifting money.

She says another option is to make a Registered Retirement Savings Plan (RRSP) deposit for their children.

“It’s the gift that keeps on giving,” said Rebelo. “When they file their taxes in April, they’ll get their tax return back, so they’ll get a second gift because now all of the sudden they get money back from the government and they can use that to pay off debt or maybe even go on a trip.”

Rebelo said this method is great because people aren’t just handing over cash, they are handing over a financial plan.

She says another gift could be setting up a session with a financial planner.

“Let your children go sit with a [financial planner] for two hours to just ask questions about financials,”said Rebelo. “Something that’s missing in today’s day and age is financial education and people just don’t know where to get it.”

Rebelo says people can also give a will and power of attorney. She says these are gifts that people won’t spend money on, but need to.

When it comes to withdrawing from an RRSP, Rebelo says it depends on the kind you have. She looks at her client’s marginal tax rates when they are making a withdrawal.

“[Withdrawals] happen a lot in December…I see clients to look at their tax rates to see if we should melt down some of the RRSP because they’re in a really low tax bracket,” said Rebelo. “It’s about just really knowing what kind of income you have for the year and knowing how to trigger a tax disposition because you want to pay less tax.”

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