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Question about transition from RRSP to RRIF
May 22, 2014
7:15 am
Loonie
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This is probably an easy question for someone out there.
The question is, if you buy a 5yr GIC in your RRSP, and you turn 71 during those 5 years, can you move the GIC from the RRSP to the RRIF without being exposed to taxation beyond the mandatory RRIF minimum withdrawals?

May 22, 2014
8:21 am
hdubya
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Hi Loonie,

CRA will not allow you to defer the RRIF payments due to illiquidity - you have the responsibility to maintain sufficient liquidity to ensure the required minimum payments can be made.

Do you mean a non-redeemable GIC that will be placed entirely in a RRSP just before it gets converted to a RRIF? Please note that each individual RRIF you hold gets treated independently and have their minimum requirements.

Do you have general details on how the account is held (brokerage, a bank, credit union, insurance company, etc.)? You must know this in order to know how it is treated - to make things a bit more complicated, things are treated differently cross various institutions. As an example, if you were to try to purchase a 5 year GIC at a self-directed brokerage, the trade will likely get rejected / blocked if the term is within your age where RRIF minimum withdrawals are mandatory (they'll enforce the liquidity requirements for you; the brokerage will not allow you to be in a debit position your RRIF payment). I would check with the institution you are planning to hold it with, and see what their policies are - if they allow you to lock away the whole amount, they are (hopefully) likely to have a way for you to get your mandatory payments out.

Sorry I couldn't give you a straight forward answer, but does this help a bit?

May 22, 2014
8:32 am
Loonie
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Thanks hdubya. I'm not sure if it helps or not!
My question was more focused on whether you can slide the RRSP, with the GIC intact, into the RRIF at age 71, knowing that it would then be subject to the mandatory withdrawals.
If i buy a 5-yr RRSP GIC from a bank in the year in which I turn 67, because I like the rate, will I be able to keep it to maturity later by transferring it into the RRIF? I don't want to move the money to RRIF before I have to.
Perhaps I should ask the bank, but I am distrustful of answers offered by banks as they are often wrong when it comes to such regulations.

May 22, 2014
8:55 am
hdubya
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Loonie,

You're correct - checking with your bank is the best thing you can do. There are CRA regulations and there are bank policies. Some will allow it because it boils down to how the GIC is treated - GICs at the bank may have a bit more flexibility (thus typically have lower yields) than GICs purchased elsewhere. Some additional questions you may want to ask the bank if the GIC can be liquidated prior to maturity to fund your RRIF minimum:
a) What is the penalty that I may incur if I were to need to do that?
b) How do the remaining funds get re-invested, and what happens to your accrued interest?
c) How does the bank calculate the market value adjustment?

May 22, 2014
9:27 am
kanaka
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Here is Accelerates policy on RRIF withdrawals
==============================================================
AcceleRate Financial offers Registered Retirement Income Fund products to all investors who have contributed to an RRSPs through-out the years. RRIFs can easily be transferred to AcceleRate Financial from other financial institutions across Canada.

By investing in an AcceleRate RRIF you will not only receive high rates of return on your investments, but our RRIF offers these services in addition:

Minimum amount required to open your RRIF is $5,000
Payment frequency is monthly, quarterly, semi-annually or annually
Payment options may be minimum payment, specified payment or specified term
Additional lump sum payments of up to 20% of RRIF balance permitted annually (conditions may apply)
RRIF payments paid to an AcceleRate high interest savings account
==============================================================

Also note the usual minimum $1000 deposit is $5000 for a RRIF and Oaken is $10000 likely due to the maintenance they have to do for making the payments. From what I have read I understand that the financial institution must do at least the minimum withdrawal at no cost to you and with no penalty in interest rate either.

If you have an account with an adviser the rules are different and they will NOT take funds from a GIC and you and your adviser must make funds available from other sources or ensure a GIC matures in the year.

The question is if you have a number of GICs in a RRIF account at a bank or Credit Union and you do some laddering to ensure there are funds maturing that meet or exceed the minimum withdrawal...will that suffice and leave all the other GICs intact? I imagine so.

Keep in mind if you have RRIF accounts at multiple institutions....you must do the minimum withdrawal from EACH institution. Also the first withdrawal needs to be the year after you reach the age of 71.

I do also believe that a GIC in an RRSP can be converted to a RRIF before maturity but the minimum withdrawal must be done. Let's face it, the financial institution knows your age from either an RRSP or RRIF so it is kind of obvious if they issue a 5 year GIC in an RRSP to you at age 69 it will have to be converted to a RRIF.

May 22, 2014
10:00 am
AltaRed
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Loonie said

This is probably an easy question for someone out there.
The question is, if you buy a 5yr GIC in your RRSP, and you turn 71 during those 5 years, can you move the GIC from the RRSP to the RRIF without being exposed to taxation beyond the mandatory RRIF minimum withdrawals?

Do you mean move from an RRSP to a RRIF, or do you mean convert from the RRSP to a RRIF at the same insitution? If the latter, I don't see why assets cannot just transition automatically. But please ask your institution to be sure and enlighten us all.

May 22, 2014
10:31 am
kanaka
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I do believe it would be your responsibility to convert the RRSP to a RRIF or an annuity and to know beforehand what you wanted to do with those funds at age 71. I would assume the financial institution would send you a reminder.

I recently asked iTRADE about accepting a transfer from Manulife of some ETFs and was suggested that I apply for an RRSP account and a RRIF account. Transfer the RRSP from Manulife to them and then have iTRADE convert the RRSP to the RRIF account . I am 64. From there, I plan to either liquidate 100 shares at a time or de-register them and move them to my TFSA account at iTRADE. Not sure what way to go.....just pay the withholding taxes to liquidate and re buy or pay withholding taxes and show and declare a loss/gain to de-register and move to TFSA.

And yes it is a good point to mention if you are converting with in the same financial institution or moving/transferring from one institution to another.

May 22, 2014
10:38 am
kanaka
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Loonie said

This is probably an easy question for someone out there.
The question is, if you buy a 5yr GIC in your RRSP, and you turn 71 during those 5 years, can you move the GIC from the RRSP to the RRIF without being exposed to taxation beyond the mandatory RRIF minimum withdrawals?

Quick answer, yes.

May 22, 2014
5:58 pm
Norman1
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I would say yes, as far as CRA goes.

According to Chapter 3 RRIF Contributions of CRA Guide T4040 RRSPs and Other Registered Plans for Retirement, you can contribute to your RRIF by transferring property, like GIC's, directly from your matured or unmatured RRSP's.

However, depending on its issuer, the GIC may not be transferable or have limited transferability.

May 22, 2014
7:58 pm
hdubya
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I guess in short, check with the financial institution you are with, and the one you are planning to transfer to. My self directed brokerage will not allow a RRSP non-redeemable GIC purchase in the entire account if it is close to mandatory RRIF age (they will block the trade). Just know that even if you end up with a 5 year GIC that's "locked" in a RRIF, you will have to find a way to make the mandatory withdrawals. Frankly, I don't think anyone wants to go there.

May 22, 2014
11:20 pm
Loonie
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Wow! This seems more complicated than it ought to be.
I checked the links that Norman1 provided, but it seems to me that CRA remains vague on this question. They allow that you can move an "Unmatured RRSP" from RRSP to RRIF. I would have thought that would have included a GIC that had not matured, but, no, their definition is "generally, an RRSP that has not yet started to pay you retirement income", which is quite a different matter.
For those who asked, the intention is to move the RRSP from institution A to institution B at age 67, buying the GIC at the new institution at that time. Then, at age 71, convert said RRSP to RRIF, keeping the GIC still ticking along at institution B.
I suppose that if they didn't have some mechanism to do this, they wouldn't sell me the GIC, as has been suggested. I am just trying to be sure to avoid the situation where somebody decides the whole thing has to be liquidated prematurely somehow, although i don't know how they would pull that off since it's locked in.
This is not the same question I asked a month or so ago about whether the bank would be able to take the minimum RRIF withdrawal amount out of the GIC during its term. I assume now that it can. I just want to know if I can keep the GIC when I "convert". I am having hassles with institution A right now so I don't want to set myself up for something and then find out that it didn't go through as that could make the problem with institution A more difficult.

May 23, 2014
7:36 am
kanaka
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Loonie said

Wow! This seems more complicated than it ought to be.
I checked the links that Norman1 provided, but it seems to me that CRA remains vague on this question. They allow that you can move an "Unmatured RRSP" from RRSP to RRIF. I would have thought that would have included a GIC that had not matured, but, no, their definition is "generally, an RRSP that has not yet started to pay you retirement income", which is quite a different matter.
For those who asked, the intention is to move the RRSP from institution A to institution B at age 67, buying the GIC at the new institution at that time. Then, at age 71, convert said RRSP to RRIF, keeping the GIC still ticking along at institution B.
I suppose that if they didn't have some mechanism to do this, they wouldn't sell me the GIC, as has been suggested. I am just trying to be sure to avoid the situation where somebody decides the whole thing has to be liquidated prematurely somehow, although i don't know how they would pull that off since it's locked in.
This is not the same question I asked a month or so ago about whether the bank would be able to take the minimum RRIF withdrawal amount out of the GIC during its term. I assume now that it can. I just want to know if I can keep the GIC when I "convert". I am having hassles with institution A right now so I don't want to set myself up for something and then find out that it didn't go through as that could make the problem with institution A more difficult.

It is always interesting to see how each topic spins off so much more VALUABLE information!! And is good to know what your "financial project" is. Keep in mind that you do not have to put all of your RRSP funds into a RRIF until age 71. I am 65 and will feed my RRIF from my RRSP with amounts close to my needs for annual withdrawals to be able to maximize on income splitting. I recently transferred some RRSP money to a virtual CDIC insured bank and received a certificate for the RRSP GIC. And after reading other comments, I realized I should question the bank.............................................................

My wife was named as the Designation of Successor Annuitant and it reads..I hereby designate that the following person to receive the proceeds of the Plan in a lump sum payment in the event of my death OR registration to their registered plan.

The GIC certificate reads…This investment is NOT REDEEMABLE prior to maturity except for the 1 year cashable or upon the death of the plan holder/owner…..AND….This Certificate is NOT TRANSFERABLE AND NOT ASSIGNABLE.

So I need to question can the funds move to my wife's RRSP account?
Can this GIC be converted to a RRIF before maturity?

I always thought you could convert an existing, not matured, GIC to a RRIF. While we all have our plans, no doubt we should have conversations with the financial institution that we plan to use to ensure our plan will succeed!! I recommend email only....and keep the responses in both hard copies and soft copies for future reference. I also suggest to see if their web site supports their email answers and make a copy of the site too. I use a handy print option that will convert Word files or a web site into a pdf file. If you are interested see here ... http://www.dopdf.com/ .... although I have no issues with it, I would suggest you have virus protection turned on before downloading.

I will let you know what the response is.

Regards Peter

May 23, 2014
9:48 am
AltaRed
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As a technicality, a GIC is not converted to a RRIF. An RRSP containing a GIC is converted to a RRIF.

The GIC certificate reads…This investment is NOT REDEEMABLE prior to maturity except for the 1 year cashable or upon the death of the plan holder/owner…..AND….This Certificate is NOT TRANSFERABLE AND NOT ASSIGNABLE.

Every GIC I know of can be (is) crystallized upon death of the plan holder/owner. Thus the GIC matures and the funds (cash) can be transferred to your spouse's plan. The best case would be for the GIC to be rolled over to your spouse upon the rollover of your RSP to your spouse, but if not, the GIC can be crystallized as noted for cash.

I think the more specific question should be: When a RRSP is converted to a RRIF, do all assets held in the RRSP automatically become held within the RRIF? And provide examples of assets such as: publicly traded stocks, debentures, bonds and GICs.

I have never read in the financial press of anyone having an issue with unmatured GICs not moving to the RRIF from a RRSP.

The second question would be in the event of my death, and assuming the rollover of the RSP/RIF to my surviving spouse, can all assets, including GICs, be rolled over as well.... or do such GICs need to be crystallized first?

May 23, 2014
10:02 am
Loonie
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It looks like some sloppy wording to me, Peter. "Successor annuitant", by definition, means that it goes directly into the spouse's plan, avoiding probate, upon your death. If it were to go to someone other than your spouse, that would be a "beneficiary", and it would not be protected. It sounds like they have conflated the two categories in their wording.
As to the GIC wording, they really need to pull up their socks and straighten this out!

As for myself, I am now thinking I might convert this RRSP to an RRIF now rather than later, just to avoid any posible hassles. I can "afford" to do this without upsetting my financial applecart, as the mandatory withdrawal will come in under $2000 so can be used for the pension credit. I already have another RRSP that has been converted, but between the two of them I still have less than 2000 mandatory withdrawal, even at age 71 when the mandatory withdrawal rate is higher. Spouse is younger, so this helps, as I can set the mandatory withdrawals to that age.

By the way, Laurentian Bank seems convinced that one can move the "active" GIC from RRSP to RRIF. "Transferring an RRSP to a RRIF does not influence your investments, their related interest rate or maturity date." https://www.laurentianbank.ca/en/personal_banking_services/my_futur/registered_retirement_income_fund.html

May 23, 2014
11:00 am
kanaka
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Hi, here is the answer in regards to my post.

In the event of your death the GIC automatically will be sent to the succesor annuitant.
- Succesor annuitant can request to move the GIC into their own account or cash it out and face taxation

Any RSP can be coverted to a RRIF upon receiving a RRIF application.

May 23, 2014
12:41 pm
kanaka
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AltaRed said

As a technicality, a GIC is not converted to a RRIF. An RRSP containing a GIC is converted to a RRIF.

The GIC certificate reads…This investment is NOT REDEEMABLE prior to maturity except for the 1 year cashable or upon the death of the plan holder/owner…..AND….This Certificate is NOT TRANSFERABLE AND NOT ASSIGNABLE.

Every GIC I know of can be (is) crystallized upon death of the plan holder/owner. Thus the GIC matures and the funds (cash) can be transferred to your spouse's plan. The best case would be for the GIC to be rolled over to your spouse upon the rollover of your RSP to your spouse, but if not, the GIC can be crystallized as noted for cash.

I think the more specific question should be: When a RRSP is converted to a RRIF, do all assets held in the RRSP automatically become held within the RRIF? And provide examples of assets such as: publicly traded stocks, debentures, bonds and GICs.

I have never read in the financial press of anyone having an issue with unmatured GICs not moving to the RRIF from a RRSP.

The second question would be in the event of my death, and assuming the rollover of the RSP/RIF to my surviving spouse, can all assets, including GICs, be rolled over as well.... or do such GICs need to be crystallized first?

Hi AltaRed.
Thanks for correcting me. You interpreted what I meant! I think most of us shorten our thoughts when typing. Thanks for the corrections. sf-wink

May 23, 2014
12:57 pm
kanaka
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Loonie said

It looks like some sloppy wording to me, Peter. "Successor annuitant", by definition, means that it goes directly into the spouse's plan, avoiding probate, upon your death. If it were to go to someone other than your spouse, that would be a "beneficiary", and it would not be protected. It sounds like they have conflated the two categories in their wording.
As to the GIC wording, they really need to pull up their socks and straighten this out!

As for myself, I am now thinking I might convert this RRSP to an RRIF now rather than later, just to avoid any posible hassles. I can "afford" to do this without upsetting my financial applecart, as the mandatory withdrawal will come in under $2000 so can be used for the pension credit. I already have another RRSP that has been converted, but between the two of them I still have less than 2000 mandatory withdrawal, even at age 71 when the mandatory withdrawal rate is higher. Spouse is younger, so this helps, as I can set the mandatory withdrawals to that age.

By the way, Laurentian Bank seems convinced that one can move the "active" GIC from RRSP to RRIF. "Transferring an RRSP to a RRIF does not influence your investments, their related interest rate or maturity date." https://www.laurentianbank.ca/en/personal_banking_services/my_futur/registered_retirement_income_fund.html

Hi Loonie.
It appears that all of the different institutions have different options. Some only have a Successor (or beneficiaries but not both) and others have both Successor and in the event the Successor is not there you can also name beneficiaries as well. I like the latter option for TFSA and RRSP accounts as that will make it easier for probate and probate fees. Keep in mind only a Successor can move TFSA or RRSP without a tax hit or in the case of TFSA, allow the over contribution. What can you do.....chase the rates......you have to use "their" forms to open an account. AND rarely do we ever see a GIC certificate with small print as when you have a GIC at a bank or credit union you only see the investment dollar details. I am happy with the answer from Oaken.

May 23, 2014
9:16 pm
Norman1
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Loonie said
Wow! This seems more complicated than it ought to be.
I checked the links that Norman1 provided, but it seems to me that CRA remains vague on this question. They allow that you can move an "Unmatured RRSP" from RRSP to RRIF. I would have thought that would have included a GIC that had not matured, but, no, their definition is "generally, an RRSP that has not yet started to pay you retirement income", which is quite a different matter.
For those who asked, the intention is to move the RRSP from institution A to institution B at age 67, buying the GIC at the new institution at that time. Then, at age 71, convert said RRSP to RRIF, keeping the GIC still ticking along at institution B.

I think there's confusion between (a) the maturing of the RRSP and (b) the maturing of a GIC in the RRSP. Those are two different things.

When an RRSP matures, the property in it must be used do a combination of these three things:

  1. buy an annuity that pays retirement income,
  2. transfer to a RRIF, and
  3. withdrawn.

A matured RRSP continues to live on only if some of its property is used to buy an annuity. Otherwise, the matured RRSP ceases to exist. That's why CRA defines an unmatured RRSP as an RRSP that has not yet started to pay retirement income. None of its property has been used yet to purchase an annuity to pay retirement income.

From CRA's point of view, there's no such thing as a RRSP-to-RRIF conversion. That would be considered a full transfer.

The maturity of the actual property in an RRSP is another matter. I think it is allowed by the tax rules to have a GIC in an RRSP and the RRSP must mature before the end of the GIC's term. No problem, if the GIC is transferable enough that one can transfer the GIC to a RRIF or do an in-kind withdrawal of the GIC from the RRSP. That all depends on the terms and conditions of the GIC and not the tax rules. One needs to be careful as GIC's are often not fully transferable.

Loonie said
I suppose that if they didn't have some mechanism to do this, they wouldn't sell me the GIC, as has been suggested. I am just trying to be sure to avoid the situation where somebody decides the whole thing has to be liquidated prematurely somehow, although i don't know how they would pull that off since it's locked in.

I'm sure the large banks have checks in their computers to do so. But, the smaller institutions may not and may not because the GIC is fully transferable and can be withdrawn out of the RRSP (with tax consequences).

May 23, 2014
9:27 pm
Norman1
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Loonie said
By the way, Laurentian Bank seems convinced that one can move the "active" GIC from RRSP to RRIF. "Transferring an RRSP to a RRIF does not influence your investments, their related interest rate or maturity date." https://www.laurentianbank.ca/en/personal_banking_services/my_futur/registered_retirement_income_fund.html

I would agree with Laurentian Bank's statement with this interpretation:

Transferring [your investments from] an RRSP to a RRIF does not influence your investments, their related interest rate or maturity date. [The prerequisite, of course, is that the investments are themselves transferable from the trustee of the RRSP to the trustee of the RRIF.]

May 24, 2014
11:24 am
AltaRed
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I have made my own query to RBC Direct Investing and will report on what they say, e.g. should I buy a 5 year GIC (from any issuing institution) at age 69....will it rollover to my RRIF at age 72.

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