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RRSP and associated Tax Liability

Doug Dubowski

Quicken can produce a net worth statement, but does not seem to identify the future tax liability of RRSP accounts. Is there a way to identify the tax liability of RRSP accounts in the Cdn version of Quicken? It would provide a more realistic net worth statement. Thanks

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Tom Young

I'm not Canadian so I had to look up how RRSP accounts work, mechanically and I understand that your withdrawals from the account, sometime in the future after you retire, will be taxed, apparently at a rate dependent on whatever your TOTAL income in is each year in retirement? That is, the tax rate for the withdrawals from the account are not "fixed and known" at this time?

If that's the case then it's really impossible to know "today" what that future liability actually will be in the future, perhaps many years from now, and then how to "discount" those future dollars into "today's" dollars. I expect if you went to 3 financial planners to try to figure this out for you you'd get 3 (or more!) different answers based on guesses as to what your total income will be when you start to withdraw the funds, what the tax rates will be at that time, and what's the proper discounting factor to use to discount those future payments.

A retail personal financial accounting program just isn't up to that task.

Now there's nothing to stop you from making your own guesses and making entries into Quicken if you want to try and show that future liability in "today's" balance sheet. You'd could create a new Liability Account in Quicken called something like "Estimated RRSP Tax Liability" and a new tax expense Category called something like "RRSP Taxes" and, periodically, make entries into that Account and that Category as your estimate changes.

Remember, Quicken is a double-entry accounting program so any entry in any Account must be offset somewhere into other Accounts or Categories, so you'd be "expensing" those discounted, estimated, future payments today. Then sometime in the future after you retire and are actually making payments for those taxes you'd make an entry into your Chequing Account with the offset going against the balance in the Estimated RRSP Tax Liability Account.

I might leave that problem alone.

Doug Dubowski

Thanks. Will require some additional thinking to implement that, if I can, in Quicken.

Chris_QPW

You are looking for a tool more like the Lifetime Planner, but the only version that currently has that is Quicken Windows US. And even there this is the only options it would give:

The net worth report is for the current and past, not the future. Even though the details are a bit different than US traditional IRA accounts the overall concept is the same, you don't really owe that tax until the it is withdrawn (and it is possible to never withdraw the money in your lifetime). And then that is where even something like above it just a guess, who really knows what the tax rates will be at the time the money is going to be withdrawn? Not to mention being the same for the whole retirement. And the Lifetime Planner doesn't allow for you to control which accounts it draws money from, it just has its own set rules. At the end of the day, it is at most a ballpark estimate.

Looking for such a retirement planner, maybe this might help:

https://www.canada.ca/en/services/finance/tools.html

Arctic Hare

I recommend using a simple model in Excel for this purpose. What are you are interested in doing is highly sensitive to the assumptions you make; therefore, there is not much point in having a highly sophisticated model because any presision gained by a more elaborate model is more than offset by the uncertainty in any assumptions you make.