Feds should eliminate mandatory minimum annual RRIF withdrawals: C.D. Howe Institute report | Page 3 | General financial discussion | Discussion forum

RSP and RIF withdrawals are all the same for tax purposes. as they are both the result of the same earlier tax deferral,
The only difference might be for the Pension income tax credit of $2000 gross. It only applies to those over 65, and I think it applies equally to either RSP or RIF but am not certain about that part. Similarly with pension splitting; I am pretty sure it does not apply to RSP, only to RIF, but you should check.

The only way to get a better deal on annuity taxation is to buy it with non-registered funds; then, you're laughing, as the tax has already been paid on the principal.

Wrayzor said

So you can buy an annuity with non-reg funds and not pay income tax?  

You pay tax but its a smaller fraction of your payout because some of it is the original capital you invested.

Rail Baron said
…
Would it make any difference for tax purposes if the annuity was funded with assets held in an RRIF versus an RRSP?

The paperwork would be different. RRIF's don't mature to an annuity like an RRSP does. Looks like a T4RIF would be issued for the amount used to purchase the registered annuity. There would be an offsetting deduction for the amount.

This is from IC 78-18R6 Registered Retirement Income Funds:

Purchase of an annuity

50. A RRIF annuitant can use Form T2030, Direct Transfer Under Paragraph 60(l)(v), to request a direct transfer of a payment exceeding the minimum amount of the RRIF to a person licensed or otherwise authorized under the laws of Canada or a province to carry on an annuities business in Canada for the purchase of an annuity for the annuitant. You [the carrier of the RRIF] must report the minimum amount for the year and the transferred payment on a T4RIF slip. The issuer of the annuity should issue a receipt (see 39) showing the date and amount of the single payment used to purchase the annuity.

The annuity payments will be reported on a different slip, like a T4A slip. But, the payments will still be fully taxable.

RRSP's were intended to help those who didn't belong to a workplace pension plan to save for a retirement pension. See previous thread A bit of 1957 RRSP history.

RRIF's were introduced in 1978 (see Budget In Brief, April 1978, page 10) as an alternative to, before age 71, (1) total withdrawal and (2) purchasing an annuity.

The minimum withdrawals are not arbitrary and are intended to emulate a pension:

• An RRSP holder will now be able to purchase a fixed-term annuity to age 90 or use an entirely new investment vehicle to be called the Registered Retirement Income Fund. This RRIF would also provide income to age 90.
• The new RRIF option would work this way: A holder buying it at age 70 would be guaranteed 20 years of benefits and be required to withdraw a specific fraction of the fund each year. In the first year he would take out 1/20th, the next year 1/19th, then 1/18th and soon until the final year drawing would exhaust the fund.

Doug said

That's true. The $2,500 was never a gift from the federal government (i.e., they're not that nice). My issue is why we need arbitrary RRIF minimum withdrawals every year, if you'll pay for it at the end of the day or, rather, the end of your life?

Cheers,
Doug  

When money is owed to you you want it asap, not when your debtor dies. So, the Government would like the taxes owed sooner rather than later; even though the taxes owed later may be higher due to the amount cashed in all at once.

cgouimet said
  

Part of the issue here as I see it is that RSP's and the resulting RIF's were/are meant as a way to defer taxes while we save for retirement. Meanwhile some of us are wanting to use these to maximize short term income from government sources and avoid taxes we agreed to when we signed up in the first place.

Many of us like to ignore that the money in our RSP's or RIF's is not all ours as some of it is taxes not paid at the time of investment. Our investor-partner (the government) wants a say in how it cashes in too ...

Bill said
Yes, the design is to provide ANNUAL pension income when no longer working, hence minimum ANNUAL withdrawals.

Plus Canadian taxpayers don't have to wait yet another 25 years or so to get their taxes back from you. Geez, who wouldn't want to wait until you're dead to pay taxes? You got to have all your money during your lifetime, doesn't cost you a penny at that point, ultimate it's-all-about-me attitude in my opinion.

When I did net worth calculations in my younger days to be conservative I always valued my RRSPs at 40% of their fair market value due to the ultimate effect of taxes, lost seniors benefits, clawbacks, etc. on later withdrawal.  

mordko said

Not true. Only if you are about to go bankrupt yourself or have reasons to doubt that debt can be repaid.

In any case, this isn’t debt and nowhere in the legislation is it called debt. Its a retirement vehicle which is taxable on withdrawal. When I put money into HISA, it does not become debt issued by the government even though the government will eventually tax income in that HISA.

In non-registered accounts we are not forced to sell assets to realize capital gains so the government can tax us asap. The purpose of RRSPs is to incentivize people to take care of their retirement themselves which is a noble idea. In fact, there are disincentives or outright bans on early withdrawals (eg from LIRA) which is counter to your theory.  

The Word from mordko. Gimme. Me. Gimme. Me.

mordko said

FYI my RRSP is very small and I am not impacted one way or another. But I appreciate your envy.  

No envy. I'm afraid mine is substantial as my pension went to a LIRA and then a large portion of it went to my RSP. So, my RSP's and LIRA with be flipping to LIF's and RIF's in a few years with an immediate end to any OAS for me ...

Bill said

Geez, who wouldn't want to wait until you're dead to pay taxes? You got to have all your money during your lifetime, doesn't cost you a penny at that point, ultimate it's-all-about-me attitude in my opinion.

It may be one's money, but one cant spend it if its not withdrawn (if there is no mandatory withdrawal) So it is a personal choice and whats wrong with that ?
So the argument of "you got to have all your money during your lifetime" is flawed. Unless one just like to count the zeros in their account every day and thats make them happy.