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consolidate RRSP's ?
March 3, 2015
7:27 pm
yuj
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Is there an advantage (fee wise) to consolidate my 2 RRSPs?
(I'm 6-15 yrs away for probable withdrawing(pre/early retirement) portions from rsp's before having to change to a rif afterwards)

so my thinking is if one has more than one rrsp at different institutions then one may have potentially more free withdrawal/redemptions as opposed to paying fees for more than one free redemption/yr ??
(recently I was told that I may have 1 free withdrawal per year, any after free one would incur fee -
of course that could change)sf-confused

March 3, 2015
9:49 pm
Loonie
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I think what you are asking is whether you would be better off to retain the two RRSPs in order to allow for 2 free withdrawals per year when the time comes, which will be in 6 years or later.

I think it may be more complicated than that. One issue that affects the answer is whether you have a workplace pension plan and also how old you are. The reason I mention this is because, if you don't have a workplace pension plan and are 65+ when you make first withdrawal, you would be better off to convert an RRSP to an RRIF before making any withdrawals. This is because you could then claim the $2000 pension income credit on your income tax, which amounts to getting that 2000 tax-free. CPP, OAS and RRSP do not qualify for the pension credit. Only a pension plan or RRIF or equivalent counts, at least under today's rules.

That issue aside, most "experts" recommend consolidating RRSPs under one umbrella because it's easier to manage, keep track, etc., especially as we age, and it becomes easier for powers of attorney to manage when we get to that point. I think the validity of this depends on your situation. If you are only invested in GICs and only have 2 RRSPs, then it's not that difficult and you will want to avoid the CDIC ceilings where applicable by spreading your money around, especially as it grows.
If, on the other hand, you have more money, and/or money in investment accounts at brokerages, you might well be better off to consolidate.

Also, bear in mind that when you convert to RIF, it is easier to make multiple withdrawals annually. RIFs are geared for withdrawals, whereas RSPs are geared for savings, so you will find that the financial institutions are more flexible with RIFs in terms of withdrawals. However, with RIFs, you are subject to mandatory minimum withdrawal rates as soon as you make the conversion, which you may not want to do, and that minimum must come out of each RIF account.

If none of these considerations are relevant, then, on the surface of it, I suppose it would be cheaper to make one withdrawal from each of two accounts rather than 2 withdrawals from one account, annually, in an RRSP.

However, as you suggest, things could change between now and then. You might have more money in your RRSPs, requiring different investments. You may change financial institutions and face different rules. You may win the lottery and not care any more about fees!sf-smile

I do notice a creep upwards in transfer-out fees for RRSPs, however, and expect that will spread like a virus. It seems likely to me that a few years down the road we will be looking at $100 transfer-out fees even for GIC-only RRSPs. So that might be a motivation for consolidating, sooner rather than later. You will spend the extra money one way or the other quite possibly, but, again, that depends on how much money you are talking about and whether it is invested in a bank (CDIC limit of 100,000) or a credit union (most if not all provinces have higher insurance ceilings for RRSPs).

March 4, 2015
8:49 am
yuj
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Thank you for the extensive informative answer.

I do not / will not have a workplace pension. I expect my income for the next 15 years will be from non registered interest income supplemented with registered account withdrawals. I do also have a small LIRA (< 9G, orphaned at another bank), maybe I should consider that my 3rd RSP.

I wonder is the LIRA also eligible for the $2000 tax credit if converted to RIF after 67+ (in my case) ?

March 4, 2015
1:10 pm
Loonie
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You're welcome.
I believe the LIRA would count for the pension credit, and is what I was referring to when I said "or equivalent" above.

However, all my comments are from memory rather than checking regulations. You would be wise to confirm with CRA before making a final decision. I'm sure it's online at their website, which is more reliable than talking to them on the phone.

March 4, 2015
5:27 pm
Norman1
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A LIRA can't be converted to a RIF. It can only be converted to a Life Income Fund (LIF).

CRA has more information about the pension income amount at Line 314 - Pension income amount. It's capped at $2,000 federally. The cap varies provincially. British Columbia and Saskatchewan cap it at $1,000. Ontario caps it at around $1,300.

CRA has two charts detailing exactly what income can be included in pension income amount, depending on one's age:

  1. Eligible Pension and Annuity Income (less than 65 years of age) chart
  2. Eligible Pension and Annuity Income (65 years of age or older) chart
March 4, 2015
5:45 pm
Loonie
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In Ontario, the pension credit boils down to getting 2000 tax-free by the time you do the math, but it can vary a little bit from province to province. I know this because I receive it. It is not income-dependent except to say that you must have 2000 of qualifying income.

You can convert your LIRA to an RRSP/RRIF if you are at least 55 years of age and the amount in the LIRA is small. Yours is under 10,000, if I read you correctly, so you should be able to convert it without a problem. So, that would cover 4 or 5 years of tax-free income if you are the right age.

March 4, 2015
7:03 pm
Norman1
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Loonie said
...
You can convert your LIRA to an RRSP/RRIF if you are at least 55 years of age and the amount in the LIRA is small. Yours is under 10,000, if I read you correctly, so you should be able to convert it without a problem. So, that would cover 4 or 5 years of tax-free income if you are the right age.

That sounds like one of the Ontario non-hardship criteria for LIRA/LIF/LRIF unlocking (see FISCO: Pension Unlocking: Non-Hardship).

I think it depends on which pension legislation the LIRA is governed by. If yuj's LIRA, below $9,000, is governed by the current British Columbia Pension Benefits Standards Act, it can probably be unlocked immediately under provision #1: sf-smile

[From FICOM: Exceptions to the Locking-In Requirement for Locked-in RRSPs and LIFs]

1. Small Locked-in RRSPs and LIFs

An RRSP or LIF holding a total value not exceeding 20% of the Year's Maximum Pensionable Earnings ("YMPE") under the Canada Pension Plan may be released from the locking-in conditions imposed by the Pension Benefits Standards Act and Regulation. For 2015, the threshold amount is $10,720.

The test is to be applied on an individual RRSP and LIF basis. There is no requirement to take into account any other locked-in pension assets a person may have. An RRSP or LIF containing more than $10,720 is not allowed to be split into smaller accounts in order to qualify for unlocking. A financial institution that splits a locked-in RRSP or LIF into portions any smaller than $21,440 is in breach of the Pension Benefits Standards Regulation. It is permissible to subdivide a locked-in RRSP or LIF into portions of $21,440 or greater.

There is no age requirement for this provision. There are no prescribed forms required for this provision. This is a separate exception from the age 65 exception. Money that qualifies for unlocking can be paid out in cash or be transferred to another tax shelter.

March 4, 2015
8:21 pm
yuj
Ontario
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Thanks again for the posts above.
(I have to say some of it goes over my head and certainly the links are a little confusing.)
I am in Ontario, in my lower 50's.

If my LIRA (in TDcantrust) can be converted / split? / or not locked-in, I would love that for flexibility.
It is now about $9,900 but hopefully more when a market-linked gic matures in 1.5 yrs.

I won't have much CPP@ 67? as most of my work has been overseas.
And except for the origin of the LIRA decades ago, I have not been in any pension schemes.
Pensionable earnings? (does that relate to my employment earnings?) I have not had employment income recently, only interest income.

It seems advisable to free up this LIRA account if possible sooner than later ?

March 4, 2015
8:40 pm
Loonie
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Take a closer look at Norman's first link in post #7. It shouldn't be too difficult to follow.

If you earned the LIRA in Ontario and not at an employer subject to federal legislation (as outlined in this link), then you should be able to convert it once you hit 55 years.

Perhaps TD could confirm this for you in advance of your 55th birthday, so that you can make plans. It sounds like the route to do this is through the financial institution where the money is invested.

I don't think that in your case there is any reason not to free up the LIRA, although I think you need to have a sense of how you will get along financially for the rest of your life before you draw on any of this money. Perhaps you have already done that.

I think everything I said in #6 above still applies unless you had a federally regulated employer, in which case you will have to see if there is any federal provision for unlocking early.

Pensionable earnings would be related to earned income from a job or self-employment, I think. - i.e. subject to CPP premiums.

March 4, 2015
10:16 pm
Norman1
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It is not where one is living right now that determines the governing legislation for the LIRA. It actually depends on the employer, type of activities, and where one worked to earn the pension that got commuted into the LIRA.

Check the LIRA statements or ask TD which pension legislation governs the LIRA. These are not all of the possible answers. But, the answer should look something like one of these:

  1. Pension Benefits Standards Act (British Columbia)
  2. Supplemental Pension Plans Act (Quebec)
  3. Pension Benefits Standards Act, 1985 (Canada)
  4. Pension Benefits Act (Ontario)
  5. Pension Benefits Act (Nova Scotia)

If the answer happens to be #2, then the unlocking rules for Quebec will apply even though you live in Ontario and the LIRA is at a TD branch in Ontario.

March 6, 2015
10:38 am
yuj
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I appreciate all the information discussed above.
I found out my LIRA does fall under Ontario PBAct.
I'm glad that I will be able to unlock it after age 55 at TDcantrust, choose to consolidate it with my RSP at TD direct investing.
I believe then after age 65 (under a RIF) I can take ~$2000 out/yr tax free with tax credit.

I wonder (as I seen in some other topic) whether it may be strategically beneficial (tax wise,and for compounding, as I am in low tax bracket) instead to withdraw it and put somewhere in an unregistered account perhaps with better fix income rates than what it would probably get in a big 5 bank and also with more flexibility or lower fee if potentially I would want to withdraw portions before 65.

March 6, 2015
1:44 pm
kanaka
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yuj said

I believe then after age 65 (under a RIF) I can take ~$2000 out/yr tax free with tax credit.

I'll be honest that I don't know what a LIRA is.

BUT you might be pleasantly surprised if you are retired now or at the age of at least 55 and retired....I believe you will get a pension credit of 1000 or 2000 and the only benefit to wait to withdraw from a RIF at 65 is you may income split it. So in other words at age 55 and if you are retired and/or in a low income it doesn't really matter if you withdraw from an RRSP or RIF. I suggest to look at what you have now that you can split and how pulling funds from an RRSP or RIF will impact on you...some pension funds can be split while others cannot. Also keep in mind you can "set up" to split your CPP with a spouse. Also keep in mind if you do get the 2000 tax free at one time or another you will likely exceed that amount and have to pay tax....so you will have to pay it now or later.

And if you do withdraw it, and keep within your lowest tax bracket and don't really need it....put it in a TFSA or if your TFSA is maxed out, at one of the higher interest institutions for non registered GIC's and consider that money in those one or two institutions as the same as that "untouchable" or "not needed yet" RRSP money.

I am an advocate for a retiree to use your lower tax exemption room for winding down your registered and taxable investments for a number of reasons. And place the first 5500 into a TFSA.

I would suggest you confer with a Tax Specialist and or an Accountant.

March 6, 2015
7:43 pm
Norman1
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yuj said

I appreciate all the information discussed above.
I found out my LIRA does fall under Ontario PBAct.
I'm glad that I will be able to unlock it after age 55 at TDcantrust, choose to consolidate it with my RSP at TD direct investing.
I believe then after age 65 (under a RIF) I can take ~$2000 out/yr tax free with tax credit.
...

For Ontario residents, about $1,330 is tax free. There's Ontario income tax on the remaining $670 of the $2,000.

As the benefit is now a pension income amount and not a pension income deduction, the money can be tax free only for people in the lowest Ontario and federal tax brackets.

I wonder (as I seen in some other topic) whether it may be strategically beneficial (tax wise,and for compounding, as I am in low tax bracket) instead to withdraw it and put somewhere in an unregistered account perhaps with better fix income rates than what it would probably get in a big 5 bank and also with more flexibility or lower fee if potentially I would want to withdraw portions before 65.

It could be. But, I think that would highly depend on individual circumstances, like the taxes and fees paid for the RRSP withdrawal and the taxes paid on the income earned outside the RRSP afterwards.

Would the return outside the RRSP be better and be better enough to cover the fees and taxes? Lots of institutions offer the same rate for both RRSP and non-RRSP money.

March 6, 2015
8:13 pm
Loonie
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You can't get the pension tax credit until age 65 in your circumstances. (you can only get it at 55 if it comes from a pension plan).

You haven't told us what your income is, but, if it is low enough, you won't have to pay any tax on the 2000 withdrawal at age 65. I was assuming you are in low income category as you said all your income was from interest, and rates are very low right now.

As to whether you should start withdrawing RSP money now and paying the tax on it, I would say it all depends on doing the math in your particular situation. It's almost entirely a matter of comparing the tax hit and possible disentitlements between doing it now and later. If your income is less than approx $34,000 in Ontario, there won't be any disentitlements.
So, what you need to do is figure out the taxes on doing it both ways. It can be difficult to project tax rates into the future, as rules may change. I would assume that at least provincially we may see higher tax rates because there is a majority gov't that is in big debt and it's early in their term. However, they may choose to just ding us by withdrawing services, user fees, etc.

If you are thinking of withdrawing the RSP money because you think you need it to live on until you can collect OAS/CPP/GIS, then that is another issue, and you should then be looking at income planning for the rest of your life. Again, this can be tricky, but still must be done. A lot depends on how much money you actually have in these various pots.

Income splitting is only an issue if you have a spouse, and you have not mentioned one so far.

If you can afford it, it might be worth your while to consult a fee-only financial planner to help answer some of your questions more precisely and in light of your particular circumstances. Figuring out exactly what is the best plan for an income strategy can be quite tricky.

If you can't afford to hire someone, then I suggest you do some independent reading. I can recommend some books if you are interested. There is no substitute for doing your own investigations. As has often been said, nobody cares more about your money than you do.

March 6, 2015
9:28 pm
Norman1
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kanaka said

I'll be honest that I don't know what a LIRA is.

....

LIRA = Locked-in Retirement Account.

It is an RRSP that's subject to additional locking provisions of the pension legislation that governed the pension plan the money came from.

Financial Post article Locked-in RRSPs: The grip is loosening gives some background about them.

March 7, 2015
12:50 pm
Norman1
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Loonie said
...
You haven't told us what your income is, but, if it is low enough, you won't have to pay any tax on the 2000 withdrawal at age 65. I was assuming you are in low income category as you said all your income was from interest, and rates are very low right now.
...

Under current Ontario rules, if one's income is significantly lower than $35,700, one can unlock and withdraw from the LIRA under the financial hardship reason for low expected income.

Calculations in Form FHU 4 (Financial Hardship Unlocking – Application for Low Expected Income) indicate that one can unlock and withdraw up to $26,800.00 minus ¾ of one's expected total income for the next 12 months.

If approved because of hardship of low expected income, one has to withdraw the unlocked funds in one taxable lump sum from the LIRA. One cannot transfer the unlocked funds tax-free to another RRSP or RRIF.

March 7, 2015
1:10 pm
Bill
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A little off topic but connected with RSPs........the Saskatchewan Pension Plan (SPP) can be joined by any Canadian and you can contribute up to $2500 per year from your RRSP contribution room (or you can transfer from an existing RSP up to $10,000 per year) so might be an option for some folks to consider. It's a defined contribution plan, you get professional management of funds (similar to what public sector, teacher pension funds get) for low cost, relatively conservative, safe approach, I think. I'm not an expert on the SPP, there's a website with more info, maybe others have some experience here.

March 7, 2015
2:05 pm
Jon
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Be advice SPP is like an LIRA, where you can only withdraw at 55.

March 7, 2015
3:17 pm
Loonie
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Norman1 said

Loonie said
...
You haven't told us what your income is, but, if it is low enough, you won't have to pay any tax on the 2000 withdrawal at age 65. I was assuming you are in low income category as you said all your income was from interest, and rates are very low right now.
...

Under current Ontario rules, if one's income is significantly lower than $35,700, one can unlock and withdraw from the LIRA under the financial hardship reason for low expected income.

Calculations in Form FHU 4 (Financial Hardship Unlocking – Application for Low Expected Income) indicate that one can unlock and withdraw up to $26,800.00 minus ¾ of one's expected total income for the next 12 months.

If approved because of hardship of low expected income, one has to withdraw the unlocked funds in one taxable lump sum from the LIRA. One cannot transfer the unlocked funds tax-free to another RRSP or RRIF.

This is true, but I don't think this is relevant to OP. He or she can simply get it unlocked because it is a small amount of money (less than 9G in this case).

March 7, 2015
6:27 pm
Norman1
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Loonie said
...

This is true, but I don't think this is relevant to OP. He or she can simply get it unlocked because it is a small amount of money (less than 9G in this case).

I was thinking of before yuj's 55th birthday.

The LIRA's owner has to be at least age 55 before the Ontario rules allow unlocking because the LIRA has less than $21,000. However, it doesn't look like any of the hardship unlocking provisions has any age requirements.

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