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RRIF questions for the experienced.
May 21, 2015
7:47 pm
kanaka
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Just a few questions about RRIFS. I am 65 but do like to utilize the RRIF for income splitting that is not available from an RRSP withdrawal.

I see institutions have different rules in regards to RRIF GIC withdrawals.
Some have a compulsory balance of at least $1,000 and others $10,000.
So when I age out at 71 the compulsory balance no longer matters.
BUT
Is it best to 5 year ladder your RRIF GICs
Or put all into a 5 year
AND
Since I must take the mandatory amount at age 72 but would like to have the option to take more on occasion without a whole lot of preplanning. This would be done at maturity of the laddered GICs or the anniversary of the one GIC. So...who has the most flexible withdrawal rules? And yes, I realize that if I withdraw more than the compulsory that there will be withholding taxes.

May 21, 2015
9:36 pm
Loonie
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I think most of us do not have a lot of RIFs, so it is difficult to make comparisons.

As soon as you create the RIF, you are required to start taking out the mandatory withdrawals relevant to the age you are at. It doesn't just start at 72. Some of the tables that are online give the impression that mandatory withdrawals kick in later because they only list the mandatory percentages starting at a certain age. TD has a chart that shows the mandatory withdrawals starting at 55yrs but it looks like it has not been updated since the most recent budget.
http://www.tdcanadatrust.com/p.....al-cht.jsp
As far as I know, the recent budget did not postpone mandatory withdrawals; it only reduced them (in the earlier years), but someone may correct me on that.

I opened an RIF in Dec 2013. The forms I had to fill out made it very clear that mandatory withdrawals would start right away, and I was not close to 72 years at that time.

So, if the mandatory withdrawal would mean that you would be taking out more than you would want, you should consider dividing your RSP into 2 plans, and then just convert one of them to RIF.

Also, a little-known fact: you can convert RIF back to an RRSP if you find a need to do so, provided you are under 71 years.

I would look at the laddering question the same as with any other GIC investment but would make sure the institution will allow an additional withdrawal besides the minimum if you should want it. Laddering may be the best way to do this, but they should allow it. REMEMBER that each and every RIF plan that you open will be subject to the mandatory withdrawals, so you need to find out if the laddered GICs would each be considered a separate plan.
Alternatively, you can set the annual withdrawal for $2000 (assuming this is equal to or greater than the minimum) when you first open it. If you had an RIF with 15,000 in it, and set it for a withdrawal of 2000/yr, it would more or less run out by the time you were 71. I don't understand why any FI would have a 10,000 minimum balance, since RIFs are designed to run down to almost nothing by the time you hit your mid-90s anyway, and a small one will go below 10,000 much sooner. FIs seem to work better with those who are in the accumulative phase of life. Those of us who are spending down our savings are not of much interest to them. Perhaps I answered my own question there!

I find RIFs are a great idea in theory but a nuisance to administer to best advantage in practice. For me, it would be easier if they just scrapped mandatory withdrawals entirely (although this may not be the best idea overall), and I would make annual withdrawals that suit my tax planning. CRA are going to get their tax money from the RIFs regardless, sooner or later. For most people, the less we take out of them annually, the more that will be left in them when we're gone, and the bigger bite that CRA will then be entitled to as the residue is fully taxed.

May 22, 2015
4:03 am
2of3aintbad
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If you were planning to withdraw just the minimum (or maybe some fixed amount) until age 71, a single 5 year GIC would likely be better. However, if you occasionally want to withdraw more, I think the financial institution may not let you cash in part of a GIC for that purpose (without penalty, anyway). You need to run your scenario past the contenders.

Checking just now, the best 5 year RRIF rate I see is 2.50% at Oaken. London Life's rate is 0.55% ! So even if one gives you more flexibility, how much will that cost you in the long run?

May 22, 2015
7:27 am
kanaka
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Hi thanks for your responses. I guess I was not clear. I do use the RRIF option to flush RRSP money through to allow the funds to be able to split with my wife, income tax wise. We then put the funds into TFSA. We only leave 100 in the RRIF account. But when 71 comes around I will still have RRSP money and since it can still grow and have creditor protection (while a TFSA does not) I may consider just leaving it in a RRIF. But I am looking for a financial institiuon with "best options". And perhaps after "sleeping on it" that the 5 year ladder will provide some options. I just can't get over setting it up and accepting the 1 2 3 4 year rates. I understand when you set up the RRIF say at age 71 that I won't have to take a payment til age 72, correct? And if the mandatory withdrawal is too much I will put those funds into TFSA.

By the way best RRIF rate is 2.7 at Hubert https://www.happysavings.ca/rates.aspx

Although right now I have RRSP funds in more than one institution I plan to move my RRIF funds to only one. But at age 71 it does not really matter does it? If you have funds at 3 places % is %....so I am looking for best options as to where to steer my funds to.

May 22, 2015
8:42 am
2of3aintbad
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As to the ladder question, I have an RSP with BMO Investorline. When I opened the RRIF, I already had a ladder and transferred over the GICs (ie did NOT buy any 1, 2, 3 or 4 year GICs). If you don't have that flexibility, just transfer the cash from any maturing GICs and withdraw what you want the next year.

May 22, 2015
9:23 am
kanaka
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I can see the benefits to have all of your RRIF funds in one institution or with an advisor especially if you want to have GICs AND stocks or mutual funds etc. but in looking for those "best options" any financial institution that offers a RRIF GIC but does NOT offer a RRIF savings account to park the funds in while waiting for a better rate....should be excluded from my list of potential financial institutuons.

May 22, 2015
10:16 am
Loonie
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It may depend on your actual numbers.
If you just take the amount you expect to be cashing out between now and 71. Put it all in a 5yr GIC, and you take out a portion every year. After the 5 years are up, you will have some left over which you can deal with at that time, as it won't be a lot of money anyway. It seems to me that this would be similar to laddering but at least you get the current 5yr rate for those 5 yrs. The point of laddering is to allow you to project further into the future, which is not your intent with this money.

You could steer the remainder of your RRSP (the part you intend to be withdrawing from after 71) into a separate account and set up whatever sorts of investments you deem suitable for the longer term.

Odds are you will get a better rate on your GIC if you don't put it into a multi-service FI RSP/RIF which offers a wider number of products. So I would still consider keeping two accounts, both in the shorter term as described, and in the longer term after 71.

May 22, 2015
11:41 am
JW
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If you have a younger spouse you have a one-time opportuntiy to use the younger spouse's age for the determining the annual minimum payment amount. This can save you on how much you must take out. Example using Old Table: In my 72 year I would have had to take 7.38% of my RRIF but using my wife's age 69 I had to only withdraw about 5%. This helps on lowering taxable income and extends the life of the RRIF as it is not drawing down income so fast.

July 3, 2016
8:59 am
JenE
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I've just been reading the posts from last year. As I will have to RIF in a few years I'm trying to educate myself in this regard. My question is: would an accountant be the best bet to go to regarding when to RIF, best tax options, etc., or a FI. I've become disillusioned with the latter.

July 3, 2016
10:10 am
Bill
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JenE, hard to say. No matter where you go you want to find someone who is honest and knows what they're talking about, and that can be encountered, or not, anywhere. In theory, the FI will be more biased and less knowledgeable but you'll pay the accountant for the advice. Why don't you start with going to CRA site and reading up on RRIFs and figuring out as much as you can for your particular income situation before you go anywhere so that you'll have done what you can do and maybe you'll just have a few points of clarification needed? It's not rocket science.

July 3, 2016
10:17 am
AltaRed
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You can consider RRIFmetic software by Steve Saltzer but I think his software may now only work on WinXP (not certain). He posts on both CMF and FWF somewhat regularly.

Generally speaking though, his software would tell you to defer taxes as long as possible, i.e. don't RIF before 71 and don't withdraw until age 72 and take only the minimum out if your cash flow needs don't exceed that. Some folks are in the situation where the mandatory minimums exceed their cash flow needs, so they re-invest as much surplus as they have (or are allowed to) into TFSA contributions.

I really wouldn't worry about withholding taxes if taking out more than the minimum required withdrawals. At most you are paying taxes a year in advance, and to the extent, withholding taxes exceed your actual taxes payable, you will get a refund anyway. Too many people wring their hands over withholding taxes.

Example: 2016 being first year of withdrawal for a RIF. One can withdraw their annual amount on Jan 2nd 2016, or as late at Dec 31, 2016. Whether one pays withholding tax then, or pays it on April 30, 2017 on the T1 General (or is entitled to a refund and gets it in May 2017) is hardly a crisis. Playing with decimal points may be an intelluctual exercise but is not of meaninful financial value.

I will have to RIF in 5 years (2022 being first year of withdrawal) and my plan is to withdraw the minimum I can on Dec 1, 2022 (rather than leaving it to the bitter end of that investment year).

Note: Even if I don't have to pay any withholding tax, I will do so anyway at my MTR so that the tax is not owing come April 30th (a mere 4 months away) and so it does not affect my installment payments. This is an important consideration for those on installment payments!

July 3, 2016
11:51 am
JenE
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Thanks Bill, and AltaRed, I'll explore your suggestions. (what is CMF and FWF by the way?).

July 3, 2016
7:20 pm
Norman1
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JenE said

… As I will have to RIF in a few years I'm trying to educate myself in this regard. My question is: would an accountant be the best bet to go to regarding when to RIF, best tax options, etc., or a FI. I've become disillusioned with the latter.

I wouldn't go to a financial institution for retirement planning or tax advice. You will likely be discussing your situation with a salesperson and not someone qualified to give tax or retirement planning advice.

Loonie reported this story about a couple who took some advice from a BMO branch in Belleville. The advice ended up being wrong and gave the couple a tax hit of almost $50,000. It took them about a year for them to get compensation from BMO.

Yes, an accountant would cost money. But, the accountant would likely not cost $50,000.

July 3, 2016
8:40 pm
Norman1
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AltaRed said
…Generally speaking though, his software would tell you to defer taxes as long as possible, i.e. don't RIF before 71 and don't withdraw until age 72 and take only the minimum out if your cash flow needs don't exceed that. Some folks are in the situation where the mandatory minimums exceed their cash flow needs, so they re-invest as much surplus as they have (or are allowed to) into TFSA contributions.

I would do the calculation to confirm if that is indeed the best approach.

Deferring taxes as long as possible will result the lowest withdrawals and the highest RIF value at death. At that time, the full value of the RIF would be brought into income in a single taxation year. That could be quite a tax hit if the RIF had something like $200,000.

I think there are situations where it would be better to withdraw more than the minimum and pay the lower income taxes. If I have $10,000 of medical expenses one year, may be that can offset the taxes on an extra $4,000 withdrawn from a RIF.

July 4, 2016
4:30 pm
AltaRed
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JenE said

(what is CMF and FWF by the way?).

CMF = Canadian Money Forum and FWF = Financial Wisdom Forum

Re: Norman1 - I don't disagree but none of us know when we expire, and when there is no spousal rollover for the residual balance, and when the full RRIF becomes taxable. That said, I agree IF there is a year of unusual deductible expenses, and one consequently drops into a lower tax bracket, there can be merit in additional withdrawals to take up the remaining room in that 'lower' tax bracket.

Folks with huge RRSPs find it can make some sense to make withdrawals (either RRSP or RRIFing) early (such as age 65) and defer OAS and CPP to age 70.

Ultimately, it is a question of tax optimization based on the PV of expected tax burdens (timing and/or marginal tax rate). Personally, I don't have enough 'accuracy' to estimate the the eventual future reality of my current assumptions to make any decision other than to default to maximum tax deferment of my RRIF funds.

July 4, 2016
9:46 pm
Loonie
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All of the responses to JenE's question have validity, in my view.

A financial planner, certified, with an independent practice, preferably the kind who charges fee-for-service, OUGHT to be the best able to make the necessary projections. There is a list at moneysense.ca somewhere of such planners.
I say they OUGHT to be able to do this because, really, this is the business of financial planners, to help you to plan! Right?
However, I am not confident that they would all be able to do this with any reliability.
Certainly a bank employee at a branch is the least promising alternative. A good accountant who has taken an interest in such questions should be able to figure this out also. I would suggest an accountant who also has CFP designation, except that we had one and he couldn't even tell me my marginal tax rate (honestly!). He said it was too complicated to figure out or words to that effect, which was not true.
It really depends on the competency of the individual.

As Bill suggested, it's best to figure out as much as you can on your own so that your questions can be very pointed, and then you should be able to take an educated guess as to whether this individual is going to be able to help you before you commit to paying him/her.

It is, in the end, almost entirely a tax planning question. However, some people prefer to keep money in RSP/RiF because it offers wider investment opportunities without the hassle of reporting the income from various sources. As long as it's in the RSP/RIF, it all goes into one pot.

As AltaRed suggests, it's really difficult to project a lot of the relevant factors, longevity being the most obvious. Some would argue that their goal is to make sure they have the money they need while they are alive, and any additional tax benefit that they can take is all to the good, but not the most important thing. What happens after they are gone is of less interest to them. I think there is merit in that position. It helps keep in perspective the fundamental need to create reasonable retirement income. Taxes have to be a secondary consideration, even though important. Fromthat perspective, postponing CPP and OAS may make sense for some people, especially if you are able to take out significant amounts from RSP/RIF before age 70 without jumping into a higher tax bracket. Also, the age credit clawback doesn't apply below age 65.

Since last year's postings, I contacted Oaken to see if they would allow any additional withdrawals from RIF GICs beyond that specified in the initial agreement. The answer was so vague as to be useless. Essentially, it is at their discretion. So, good luck on that.

It may be that the only way you can be sure of being able to make an additional withdrawal from RIF in order to respond to opportunities presented by high tax credits or deductibles in a given year is by keeping some of the money in an RIF savings account, which pays dismal rates, or by selling off other kinds of investments if you have them or using maturing GICs etc - things you have to plan for. They may or may not provide the amount you were looking for. The problem is that very few of the FIs that are worth bothering with offer an RIF savings account - basically only the MB CUs as far as I can see.

I am a bit older than AltaRed, but I too set my withdrawal date for Dec 1. This gives you the rest of the month to sort out any additional withdrawals that may be to your advantage as you will know by then what your tax liability is, more or less.

I found this book helpful in looking at retirement income planning:
"Your retirement income blueprint : a six-step plan to design and build a secure retirement - a Canadian guide" by Daryl Diamond. 2nd edition 2014. You have to adjust for recent budget changes.

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