The RRIF quandry | Page 2 | Peoples Trust | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
The RRIF quandry
December 6, 2023
12:43 pm
savemoresaveoften
Member
Members
Forum Posts: 2641
Member Since:
March 30, 2017
sp_UserOnlineSmall Online

RetirEd said
AltaRed:
In the '80s, after becoming more aware of the disadvantages of RRSPs for low tax brackets, I stopped RRSP deposits to wait for better tax reductions. Then TFSAs appeared and I've used those exclusively. In some years, I was able to remove big chunks of RRSP late in the year and claim the witholding in January without incurring taxes. That is how I maximized my entitlements when old enough. We should warn young folk about the hazards of RRSP contributions in early, low-income years!

RRSP only works for the middle class income earners only. If you dont pay a high % tax, benefit is minimal. Even if you do pay a very high tax which means you are very successful, chances are your retirement income will be high too and they will ding you regardless. Maybe a first class problem but a real problem. Does not take much before OAS clawback to zero, every pension and handout earned in senior gets taxed at high rate, and mandatory RRSP by a certain age compounded the problem.
If one only has the means to contribute to either RRSP or TFSA, TFSA seem to be a more sensisble place. The only real benefit of RRSP is compounded return tax free, but then any capital gain or dividend becomes 100% taxable at withdrawl, which eats up a lot of the compounded return advantage.

December 6, 2023
1:15 pm
Itellyouwutt
Member
Members
Forum Posts: 106
Member Since:
November 22, 2023
sp_UserOfflineSmall Offline

SMSO: I get what you're saying and agree that it's a legitimate problem -- albeit a nicer one to have than the opposite.

Obviously, like everyone else I'll try and minimize the impact when the time comes (a ding from a flying rock is better than being hit with a wrecking ball).

But even if I am thrust into OAS clawback territory, I've already promised myself not to be miserable about it. It means I'm not eating cat food (unless I am one of those mega rich Howard Hughes types and eating cat food is something I enjoy doing).

Also, I think something that gets lost in the clawback conversation is that people who face that reality are not being 'punished' -- for decades, they availed themselves of taxpayer-funded services at a discount. Now, the bill is due.

The key as I understand it, is to start melting down an RRSP ahead of time -- or at least, understand and accept what's going to happen in terms of mandatory RRIF withdrawals.

But I agree with anyone who says that most people who contribute to an RRSP do not seem to understand how or why they actually work.

December 6, 2023
1:17 pm
Bill
Member
Members
Forum Posts: 3856
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Just an idea: A family member used the strategy of contributing to RRSPs for years but never claiming the tax deduction. A couple of years ago he made capital gains due to shares he held in his company that was taken over (he knew this would happen at some point) and this put him well up into the highest tax brackets so he deducted his pile of accumulated undeducted RRSP contribution amounts on his tax return that year.

That is, there is no requirement to claim the deduction in the same year as your contribution, you can pile them up forever. (Yes, I know, you might want to take into account the time value of the previously forgone deductions.) This might be useful if you know you're going to be in significantly higher tax brackets in future years.

December 6, 2023
1:27 pm
Itellyouwutt
Member
Members
Forum Posts: 106
Member Since:
November 22, 2023
sp_UserOfflineSmall Offline

Bill, that is a great point. I have fantasized about doing something like that, and seeing a total tax owing of $0 on my return. But I don't think I have the guts to do it like your family member -- I would be too worried that I wouldn't reach the promised land, and end up looking back at several years of paying significantly more in tax than I could have + missing out on the compound interest.

Besides, I don't look at RRSPs as savings. In fact, I don't believe in the concept of savings. It's just a concept. In my little world, there is only buying. If you have $30k you either buy a car, or you buy not having to work for X number of months (depending on how much you want/need).

I think a lot of people -- especially young people -- are kind of turned off by 'saving' because it seems so boring and life-negative. I get why they see it that way. But again, I only believe in buying. You buy stuff/experiences, or you buy time/power/freedom (by doing what is conventionally called saving).

Weird, I know, but it works for me.

December 6, 2023
1:36 pm
Bill
Member
Members
Forum Posts: 3856
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Not weird at all, there's always been savers, there's always been spenders (many of us see both in our own families), and also there's folks somewhere in between the two ends, nothing new really.

December 6, 2023
1:39 pm
Itellyouwutt
Member
Members
Forum Posts: 106
Member Since:
November 22, 2023
sp_UserOfflineSmall Offline

Bill said
Not weird at all, there's always been savers, there's always been spenders (many of us see both in our own families), and also there's folks somewhere in between the two ends, nothing new really.  

Not really what I meant -- but that's OK too!

Does your family member take you out on their yacht?

December 6, 2023
2:15 pm
serendipity
Member
Members
Forum Posts: 168
Member Since:
October 30, 2023
sp_UserOfflineSmall Offline

@RetirED

I apologize for not being able to decipher some of your advice. I will definitely visit Canadian Western Bank; they've a branch near me in Vancouver and there's parking. Motive, as a derivative online fintech, is out for me. I might use Oaken but their service and location suck. I've only CIGs with them, needing little interaction.
Fees are more important than rates for that low an amount. It's too small for multiple institutions. For your question, there's witholding tax on RRSP withdrawals (out of registered status), claimed back the following year. The December withdrawal date would be great for this. I've ample non-registered cash to stuff my TFSA for 2024, so I don't need to wait for tax refunds anyway.
I've been thinking of the minimum-withdrawal route so far, unless I see some good arguments against it. Posthumous taxation doesn't worry me.

No problem. PM me if you like. I went through the conversion a few years ago. I still need to make adjustments to my terms, in amounts and length of years per term(s) to make it be flexible and manageable for me. Will do the fix ups when next RRIF matures.
My focus is, now, to open an account at CWB and start draining out Hubert.

December 6, 2023
3:52 pm
Bill
Member
Members
Forum Posts: 3856
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Unfortunately no yacht rides for me, Itellyouwutt, his money is for the other option your mentioned, i.e. time, freedom.

December 12, 2023
8:00 pm
RetirEd
Member
Members
Forum Posts: 947
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

AltaRed: Exactly. It does not reduce the Total Income most benefits are based on. That's why I need to know where assorted credits and deductions go.

savemoresaveoften said:

The only real benefit of RRSP is compounded return tax free, but then any capital gain or dividend becomes 100% taxable at withdrawl, which eats up a lot of the compounded return advantage.

Actually, it eats up ALL the benefit unless if taxrates don't change.

Itellyouwutt: Indeed. Unspent cash, for me, is freedom in the bank.

RetirEd

December 12, 2023
8:24 pm
RetirEd
Member
Members
Forum Posts: 947
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

serindipity: I had a good half-hour chat with someone at CWB. I didn't tell him the small size of my RRSP, so perhaps he was being more helpful than he might have been, but I did learn a lot that shows what may be possible. He talked about personal wealth management limits and I steered away from that, saying I stick to insurance limits at each outfit.

The rep said he, himself, could be found at the branch for consultation without diversion to an all-Canada waitfest. For visits, he said an appointment wasn't required but a heads-up call about an hour ahead of time would be nice. I consider that dang near ideal for reaching a particular person.

He said they have only Monday-Friday service. No weekends. And he'd gladly provide printed statements, though I didn't push it and ask if they'll mail them; he's used to old folks refusing to go on-line. I guess CWB doesn't insist on it after all.

Minimum RRIF withdrawals are no-cost and can be broken out of GICs. He said it was my choice whether to take the 1-year term where the RRSP GIC is maturing this month (if I can get the 5.8% rate there) or go straight to RRIF now. I still need to talk to a couple of agencies about the effect on my assorted benefits.

He recommended having a chequing and savings account at the branch. For over-70s, there are no regular fees but withdrawals have to be moved to the chequing account to avoid $5 per transaction. I think I might just use one account as a result. If at all... if DD/DW works I don't think I'd need it. Their savings rare is feeble but the amount is small.

They have an 18-month GIC at 5.4%. All rates are of course subject to change.

They have parking behind the branch.

This might work!

RetirEd

December 12, 2023
9:19 pm
Norman1
Member
Members
Forum Posts: 6616
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

savemoresaveoften said

The only real benefit of RRSP is compounded return tax free, but then any capital gain or dividend becomes 100% taxable at withdrawl, which eats up a lot of the compounded return advantage.

RetirEd said

Actually, it eats up ALL the benefit unless if taxrates don't change.

There is actually no net taxes when the withdrawals are taxed at the same tax rate as when the contributions were deducted. See previous calculations done.

December 12, 2023
10:25 pm
Loonie
Member
Members
Forum Posts: 9180
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I would advise against the one year GIC at Peoples. You don't want to be caught near year end next year trying to transfer it somewhere else as well as converting. The time frame can be tight and FIs slow; save yourself the worry. Move it now to wherever you are going to hold the RIF until it's depleted.

Be ware, however, that some FIs have minimum amounts for RIF deposits. I have seen at least one at 10K. I don't know what happens if your RIF is less than that or whittles down to less than that. They may possibly close it out on you at a certain point. Need to ask AND check fine print and Policies.

My sense it that FIs don't especially like dealing with RIFs because they are a declining asset, so they don't waste much effort learning about them or dealing well with customer questions - especially smaller FIs. They will be more interested if you give them to believe you have other more substantial business that you might bring them in due course if they treat you well,

I haven't read this entire thread, but your main concern seems to be your benefits. So, you need to check into their thresholds.
If possible, take out 2000 from RIF for 2 years and remainder in 3rd year, assuming that doesn't upset your benefits and that you can find an FI that is willing to maintain such a small amount in RIF for you. (The paper work for them may be more than you're worth to them.) You can more or less make the income go away with the Pension credit.. Bear in mind, however, that the Pension Tax Credit does NOT lower your income for purposes of calculating access to benefits; it's only a credit against any tax you may owe,not a deduction.

From what you've said here and in the past, I assume you don't have to worry about the OAS clawback or losing some of the Age Amount, which would be concerns for many of us.

Alternatively to taking out 2K per year, you could just let it dribble away in mandatory withdrawals, at least for as long as the FI lets you keep it open. The FI will look after all that and send you a T slip. Depends on how close you are to benefits thresholds.

Nonetheless, if it were me, I'd take the lump sums just to be done with it. But that's me. As you age, you want things simpler, trust me! And there will be no risk of you losing or forgetting that extra T slip.

December 13, 2023
11:50 am
RetirEd
Member
Members
Forum Posts: 947
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

Norman1: Quite right. I meant to say "if tax rates don't change." Over-editing on my part.

Loonie: Peoples will let me break and take the TFSA at any time during 2024, so I don't have to butt up against the year-end. It's true that I might have trouble finding a RRIF that small, but I have time to shop around and I have near-maxed assets at Oaken already to help them want me. They offer RRIFs.

I'm nowhere near any benefit cut-offs, but several would be reduced by almost the same amount as the newly taxable income. I'm still collecting data for the calculations.

So far, I'm leaning toward the dribble method, since I have no heirs. If I lose a T slip, it's no more inconvenience than a letter of amendment. Those are no terror for me after decades of tax filings.

Thanks, all, as always.

RetirEd

December 13, 2023
12:34 pm
Loonie
Member
Members
Forum Posts: 9180
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I hear you.
One other consideration in favour of the lump sum method would be that you get access to your money while you're alive. The reduction in benefits will be temporary, probably 1 to 3 years. I guess you have to do the math comparison on that for net gain and at what age you break even.

December 13, 2023
12:59 pm
RetirEd
Member
Members
Forum Posts: 947
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

UPDATE: I called Oaken and they do indeed have a $10K minimum for RRIFs. Even for large depositors like meself! Hrmph. Anyone know an RRIF issuer with a lower limit?

Loonie: At the moment I have no need for those few bucks. If, after I'm paying for a care home, I need it, I'll just pull it out and not worry about the difference.

Don't cry for me, folks. My TFSA income is larger than my benefits.

RetirEd

December 13, 2023
3:30 pm
Loonie
Member
Members
Forum Posts: 9180
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Yes, I had a hunch it was Oaken where I saw the 10K minimum, but didn't want to mislead you.

I can't make a recommendation as I've never really looked for this answer. Since you don't want online banking, you may be limited. As I said earlier, an RIF that small is more trouble than it's worth to the FI.
If you have any unused RSP contribution room, you can still top it up if that helps.

December 24, 2023
3:34 am
RetirEd
Member
Members
Forum Posts: 947
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

Loonie: I certainly wouldn't want to contribute any more to my RRSP! I'd get no tax benefit and the deposits would be taxable on withdrawal.

Thanks, anyway. I'll continue to canvass the institutions that have lots of my savings in their coffers.

RetirEd

December 24, 2023
1:29 pm
Loonie
Member
Members
Forum Posts: 9180
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I agree. I only suggested it because you seemed determined to dribble out your RSP/RIF. I'm not confident you will find an FI that will accept such a small amount, pay a decent rate, and not require online banking - which appear to be your other criteria. I couldn't think of any other alternatives.

Let us know what you find.

I will be closing out my RIF entirely in 2024 (at least until/unless I survive my spouse and thus acquire more). It will be a very welcome Christmas present to myself next year to be rid of the darn thing!

January 4, 2024
4:53 am
RetirEd
Member
Members
Forum Posts: 947
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

Loonie: Good news - good ol' VanCity has a minimum of only $2,000 for their RRIFs, and their GIC rates seem higher than they've been for years. (Since the 2008 recession debacle that caused them to sell off Citizens Bank retail assets and most of their insurance business.) Not that rates matter all that much on my little vestigal RRSP. I can still decide whether to move the RRSP contents now or at any time until the end of November 2024. (Allowing a month for the transfer.) If the rates are good at VanCity I may move earlier to simplify things.

Bad news for some: VanCity also announced they plan to impose a $2.50 statement charge for printed copies! That's higher than the $1-$2 most other places are charging, but it only applies to some clients. Nothing about an asset exception, but they do waive the fee for those over 70! Yay!

(I was prepared to whine that I was too old, their phone service too slow and internet too damn expensive, but didn't have to.)

Among those outfits I've queried, only Peoples, VanCity and Coast Capital have some no-fee mailed statement plans. Coast Capital seems to be grandfathering them only for existing clients.

The guy at CWB said he thought so too, but wasn't sure; Wealth One promised me free mailed statements but reneged as soon as I signed onto the GIC. I left them after a year when it matured.

RetirEd

January 4, 2024
12:52 pm
Loonie
Member
Members
Forum Posts: 9180
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Congrulations!
What happens when your RIF whittles down to 2K? Will they let you keep it going? That will take several years anyway.

I don't know what your plan is, but here's a suggestion: Buy GICs that will expire annually in about November. Calculate how much extra you could take out of the RIF without damaging your benefits, and do so. The magic number might vary form year to year.

No permission to create posts

Please write your comments in the forum.