How to deal with RRSP's (Canada)

David T. sunfish62 at yahoo.com
Fri Jan 5 12:29:56 EST 2018


Michael,

Because of your experience and knowledge, I was really hoping you’d weigh in with insight on the question of how to report a disbursement from one of these common retirement vehicles as income, rather than a transfer between assets. How would you recommend tracking money that is earned in 2017, but which is counted as taxable income only in 2035?

Cheers,
David

> On Jan 5, 2018, at 7:42 PM, Mike or Penny Novack <stepbystepfarm at dialup4less.com> wrote:
> 
> On 1/5/2018 1:05 AM, David T. via gnucash-user wrote:
>> David—
>> 
>> I see where you are coming from on this.
>> 
>> For reference, I accept your 5 assumptions; I believe they are accurate for many US retirement accounts as well.
>> 
>> .........
>> I guess, from a philosophical perspective, the question really is: when do these funds become income? Is it when you get paid, or is it when the money actually gets disbursed? It seems to me that most of us are looking at it from the first perspective, but that the taxing agencies are looking at it from the second. So, for example, I have paycheck transactions that document my retirement contributions, transferring to the retirement asset accounts from a special (retirement) income account
>> David
> There are ADDITIONAL questions if a US 401k. For example, are company contributions vested immediately or only over time? Here is a typical case (yours might be different)
> 1) Company contributions are vested 10% per year.
> 2) Any still unvested contributions become fully vested upon retirement at normal age (possibly also separation earlier but after age 55) or upon death if earlier.
> 
> In other words, the company contributions are conditional on staying with the company. They are in the account and earning but there is a diminishing liability (you have to pay back the unvested portion if you leave)
> 
> The 401k account MAY also have after tax contributions made to it, but that only affects how distributions will be taxed.
> 
> Another benefit that some companies offer is "split dollar" insurance. Very complicated to figure its affect on net worth. With split dollar, the company still owns the policy but you get to select the beneficiary << the rights associated with ownership of an insurance policy can be separated >> Called "split" because the employee is taxed for the premium of the same amount term policy. Often to prevent that complication, the employee is billed that amount. At termination the employee has the right to:
> 1) Surrender the policy paying the company back for the premiums from the accumulated policy values keeping the remainder.
> 2) Pay the company that amount and keep the policy.
> Note that there is a hard to calculate value associated with that choice << what is your health status at this time in the future when you have to make that decision.
> 
> Note that this is simply a special case of things that might affect "effective" net worth or income but are difficult to carry on the (main) books. For example, a job might provide in addition to salary, housing, use of a vehicle, etc. << and this could even be tax free "income" depending on the circumstances >>
> 
> Michael D Novack
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