If dipping into your retirement savings is the only alternative to make ends meet it’s important to know the tax consequences vary depending on where you draw the cash from.
Ideally, you will already have some cash in your retirement accounts, but your needs could require liquidating investments. Selling investments in a pinch can be tricky in a market where just about everything is in a slump. A qualified investment advisor can help trim profits, or separate the duds from those poised to realize their potential.You might also want to consult a tax expert.
Both are loans against the equity in your home and interest is charged on the balance owed. That interest compounds over time until the full loan is paid back; either at the homeowner’s choosing, when the house is sold, or the owner dies. The interest rate on a HELOC is tied to the lender’s prime lending rate, which is tied to the Bank of Canada benchmark rate. With more central bank rate increases on the horizon, the interest rate on a typical HELOC has risen to about five per cent from under two per cent in less than a year.
If you repay the balance on the line of credit quickly, the interest cost is capped. If financing is a chronic problem, the best course of action from a tax perspective could be to sell the house. There is no capital gains tax on the sale of a principal residence. Registered retirement savings plan withdraws are fully taxable according your marginal income tax rate in the year of the withdrawal .
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