Plan Ahead for Your RRIF: How Will You Withdraw Funds?

When the RRSP must be collapsed, funds are often converted to a Registered Retirement Income Fund (RRIF), which requires minimum withdrawals prescribed by the government based on age (please see the Canada Revenue Agency website¹ for the withdrawal rules: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/t4rsp-t4rif-information-returns/payments/chart-prescribed-factors.html. RRIF withdrawals are treated as taxable income.

If you plan on holding the RRIF, some forethought should go into your withdrawal strategy. Why? In some cases, withdrawing more than the minimum amount can improve an overall lifetime tax bill. On the other hand, funds kept in the RRIF for as long as possible can benefit from tax-sheltered growth.

Here are some considerations, depending on your situation:

1. A younger spouse’s age can determine withdrawals. If your goal is to continue growing tax-sheltered funds and you have a younger spouse, you can use the younger spouse’s age to determine the minimum withdrawal rate for your own RRIF. This may be one way to preserve income-tested benefits such as Old Age Security. Keep in mind that you will need notify us (or the financial institution where the RRIF is held) before you make your first RRIF withdrawal. As well, changes cannot be made once the spouse’s age has been chosen. Note that this situation doesn’t require a spousal RRIF or a spouse to be named as beneficiary.
   
   
2. Withdrawals can be accelerated to optimize a lifetime tax bill. If your RRIF minimum withdrawal amount and other income put you in a lower tax-bracket, it may make sense to withdraw more than the minimum amount. In the absence of a spouse (which would permit a tax-free rollover of the RRIF), if significant RRIF funds remain at death (and depending on your estate value), the estate may be subject to the highest marginal tax rate. (Even with a tax-free rollover, a spouse over age 71 would be required to withdraw prescribed amounts from your RRIF, which could put them in a higher marginal tax rate.) Keep in mind that a withholding tax will apply on RRIF withdrawals in excess of the required minimum amount.
   
   
3. RRIF income can be used for income-splitting purposes. If you have a spouse who is in a lower tax bracket, RRIF income may be used for income-splitting purposes. Forward planning may be advantageous, as transferring a portion of the RRSP to the RRIF as soon as the year in which you turn 65 years old can take advantage of pension-income splitting and the pension tax credit.
   
   
4. RRIF withdrawals can fund a TFSA. If you have excess funds not immediately needed from RRIF withdrawals, consider contributing them to your Tax-Free Savings Account (TFSA).² This may be an excellent way to continue benefitting from tax-preferred growth: TFSA growth will be tax free. Please contact us to discuss an “in-kind” transfer. While the value of the investments transferred from the RRIF will be considered taxable income, an in-kind transfer to a TFSA can ensure continuity of holdings.

Start Early

RRIF withdrawal considerations should be part of a larger retirement withdrawal strategy. This shouldn’t be left until the last moment. In some cases, planning for the conversion from the RRSP to the RRIF can start early. Strategically timing registered withdrawals may also be important. Every situation is different, so please call for assistance.

1. canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/t4rsp-t4rif-information-returns/payments/chart-prescribed-factors.html; 2. Subject to available contribution room.

Insurance products and services are offered by life insurance licensed advisors through Chevron Wealth Preservation Inc., a wholly owned subsidiary of Echelon Wealth Partners Inc. This material is provided for general information and is not to be construed as an offer or solicitation for the sale or purchase of life insurance products or securities mentioned herein. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please seek individual financial advice based on your personal circumstances. Please note that only Echelon Wealth Partners is a member of CIPF and regulated by IIROC; Chevron Wealth Preservation is not.

Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. These estimates and expectations involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.