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Situation: Approaching 30, young man wants to cash out of pension, get an MBA, then start his own business

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tap here to see other videos from our team. Try refreshing your browser, or 29-year-old torn between cashing out pension to start a business, or sticking with his secure government job Back to video

Solution: Manage the income that results from the payout, cut property risk, and see what happens

Lenny, age 29, lives in Ontario. He brings home $5,230 a month after-tax from his job as a government employee and $3,980 a month from two rental properties for a total of $9,210 per month. He figures that his chosen line of work has its limitations. He wants to cash out his pension with a commuted value of $235,000, put some of the money in a Locked-In Retirement Account and the remainder in an RRSP or a TFSA. He can keep or sell one of the rental properties — a condo and a house — or keep one as a future primary residence.

The issues come down to whether to take the commuted value of his pension, which is the sum required to provide promised benefits, or to sell. The condo, if sold, would generate a capital loss, the rental house, if sold, would generate a small taxable gain. He would get a tax break on the house, formerly his primary residence, for it has been a rental property for only a few months. It would also lighten real estate that is two thirds of his total assets.

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