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RRIF withdrawals Pre Covid-19 no tax withhold amount vs new minus 25% minimum
June 5, 2020
11:18 am
GICinvestor
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In the past a RRIF withdrawal for age 71 was 5.28% and now is 25% less at 3.96%

Ie.
Before the new measures
$100,000 RRIF the mandatory amount before would be $5280 with no tax with hold

Now with 25% less
$100,000 RRIF the mandatory amount before would be $3960 with no tax with hold

We will have to put all of our RRSP into RRIF this year before December 31.

My question is:
If I chose to take the old and higher % out would the $5280 have a tax withhold? Or just the amount over $3960.

I can see some issues here as some retirees would not like the new lower amount and would still prefer to take out the higher amounts.

June 5, 2020
1:31 pm
cruzinalong
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GICinvestor said
In the past a RRIF withdrawal for age 71 was 5.28% and now is 25% less at 3.96%

Ie.
Before the new measures
$100,000 RRIF the mandatory amount before would be $5280 with no tax with hold

Now with 25% less
$100,000 RRIF the mandatory amount before would be $3960 with no tax with hold

We will have to put all of our RRSP into RRIF this year before December 31.

My question is:
If I chose to take the old and higher % out would the $5280 have a tax withhold? Or just the amount over $3960.

I can see some issues here as some retirees would not like the new lower amount and would still prefer to take out the higher amounts.  

You must be one year older than I am. I assume my RRSP will be automatically converted to a RRIF on December 31, 2020. Next year I will be required to withdraw 5.28%. You do not have tax withheld on minimum RRIF withdrawals. I have a friend that started a RRIF a few years ago. I called. He is waiting to December before determining which minimum withdrawal to do. Enjoy the summer.

June 5, 2020
1:50 pm
cruzinalong
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You have to withdraw the minimum payment the year after opening a RRIF. I think you will have a choice. If you do not need the old minimum take out the new minimum less 25%. I checked RRSP. Down a little since December statement.

June 5, 2020
10:15 pm
Loonie
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You might want to double check the percentage you are using as baseline.

It's confusing.
I think you are saying you are turning 71 in 2020.
The percentage required is based on your age as of midnight Jan 1 of the year in question. So, if you are turning 71 this year, this means your age at the beginning of the year was 70. Thus, the baseline withdrawal rate for 2020 for you would be 5.00% if you chose to make a withdrawal this year..
And the new adjusted rate would be 25% less than that, namely 3.75%.

i found this out in the first year when I took RIF payment. I anticipated a larger withdrawal than the one that occurred. It turned out that the discrepancy was because I had assumed the rate was determined by the age that I would turn in that year rather than age at beginning of year. I was in my 60s then.

If you are turning 71 this year, you have the option of postponing first mandatory withdrawal until 2021, at which point it would be 5.28 (unless reduced by law).

While most FIs will automatically switch you to RIF in the year you turn 71 in the absence of any instructions from you, I do not advise letting them take control of this process, for the following reasons:
1. If you leave it until the end of the year for this to happen, there is always the risk they might not do it for some reason, in which case the RSP would be folded and you would have huge tax liability.
2. You want to choose which date in the year that the mandatory withdrawal will take place. and also whether to take the withdrawal this year If you are not involved, they will choose it for you.
3. You want to have a beneficiary in place as soon as you open the RIF. Beneficiaries do not carry over from RSPs. Some FIs couldn't care less if you ever do this and will not remind you to do so.
4. Some FIs will not allow a GIC to be carried over from RSP to RIF. You need to be involved to manage this situation if it should arise.
5. It is probably to your advantage to set the mandatory withdrawals according to the age of the younger spouse. The FI will not do this of its own accord. You must ask for it at the time. Cannot be changed later unless you move to a new FI.

Don't leave conversion to the last minute. Unexpected problems can arise, you could be sick or distracted, and there are staff shortages and short hours in the last week of December. Don't leave it any later than October.

I have converted several of them, and these are the things I have learned.

June 6, 2020
1:31 am
cruzinalong
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Thanks for the reasoning. I will save this until late in year.

June 6, 2020
8:56 am
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Thanks Loonie.

I think I am on target with the % as I won't take a mandatory withdrawal for age 70 but will for 2021 at age 71.

Good point about the beneficiary too!! Thanks!!

I think I have to refresh my beneficiaries with Oaken for both TFSA and RRSP/RRIF for both Home Trust and Home Bank or just OAKEN.

And of course I guess we all have to know what the value of our GIC's are as of Dec 31 every year to help determine what the mandatory amount will actually be.

But I still wonder with the 25% lower mandatory amount vs the old (pre Covid-19) original mandatory amount. Will the NO tax withhold threshold amount be the 25% lower amount or the old original amount?

June 6, 2020
9:49 am
cruzinalong
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GICinvestor said
Thanks Loonie.

I think I am on target with the % as I won't take a mandatory withdrawal for age 70 but will for 2021 at age 71.

Good point about the beneficiary too!! Thanks!!

I think I have to refresh my beneficiaries with Oaken for both TFSA and RRSP/RRIF for both Home Trust and Home Bank or just OAKEN.

And of course I guess we all have to know what the value of our GIC's are as of Dec 31 every year to help determine what the mandatory amount will actually be.

But I still wonder with the 25% lower mandatory amount vs the old (pre Covid-19) original mandatory amount. Will the NO tax withhold threshold amount be the 25% lower amount or the old original amount?  

My parents had GICS in their RIFF. They took the minimum withdrawal amount. It is interesting how the FI cashed GICs. Say the total value was $100,000. The withdrawal rate 5.28%. $5,280. FI cashed GICS that paid the lowest interest rates first.

I have paid the required withholding tax when I withdrew funds from my RRSP over the last 15 years. The withholding tax has always been too much. When I filed my tax return in the spring I got a refund. One year my taxable income would be high. The next year taxable income would be lower. I had extra income from tax refund. I did not need to withdraw RRSP funds every year.

If you take the 75% option then no withholding tax. If late in the year you take out extra say 33.3% of first withdrawal then you may/may not pay withholding. Best to ask your FI for clarification. Everyone is UNIQUE. Remember this is a new change for all RRIF holders.

June 6, 2020
10:28 am
GICinvestor
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Thanks cruzinalong

My parents had GICS in their RIFF. They took the minimum withdrawal amount. It is interesting how the FI cashed GICs. Say the total value was $100,000. The withdrawal rate 5.28%. $5,280. FI cashed GICS that paid the lowest interest rates first.

From some of my research over the last few years I have found every FI has their own method on where the mandatory payout comes from. I am hoping to know what the rules are for both Oaken and Hubert as I want to manipulate the payouts based on their rules from the funds I have in place before hand. I hope that made sense?

As you mentioned above..that makes sense to protect the higher interest rate to remain in place. But that would depend upon other funds amounts and rates too!!

I have paid the required withholding tax when I withdrew funds from my RRSP over the last 15 years. The withholding tax has always been too much. When I filed my tax return in the spring I got a refund. One year my taxable income would be high. The next year taxable income would be lower. I had extra income from tax refund.

I have been pulling RRSP => RRIF funds out for the last 5 years or so and I have found that taking no more than $5000 per withdrawal keeps me at the 10% with hold. I am on pensions too and my company pension is the only other place that I have taxes withheld. My pension took a 30% reduction hit and my tax withhold also dropped to almost none! BUT I still set aside that same higher amount for taxes along with 20% of all GIC interest paid to me annually and I have a lot left over!! But the thing I like about it all....I am able to gain the interest on the money I withhold on my own.

Also if you have two or more RRIF accounts at different FI's that will help you too in lessening the withhold taxes.

I did not need to withdraw RRSP funds every year.

Nor do I. I use RRSP/RRIF to fuel our TFSA and any over I put into a special slot under x-RRIF funds into 1 year cashable GICs. And next year I will turn on all TFSA GICs upon renewal to pay interest annually. And once $1000 is in savings I will invest in $1000 TFSA GICs which will be all from interest only.

If you take the 75% option then no withholding tax. If late in the year you take out extra say 33.3% of first withdrawal then you may/may not pay withholding. Best to ask your FI for clarification. Everyone is UNIQUE. Remember this is a new change for all RRIF holders.

75% correct I get it but I have read that the withhold tax may remain in place for the full pre Covid-19 amount. ie. $100,000 and you take $3960 no tax withhold BUT if you take another ($5280-$3960) = $1320 that it too may have no tax withhold. Would that apply to me or some one older or nobody? I am only looking for clarification so I can plan withdrawals and over withdrawals accordingly.

June 6, 2020
12:51 pm
Loonie
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Just to be clear, if you are turning 71 in 2021 and plan to take a mandatory withdrawal in that year, your baseline rate for 2021 will be 5.00% because you were only 70 at the beginning of that year.

June 6, 2020
5:52 pm
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Loonie. Turning 71 2020.

Thanks for all of your advice. Will start to convert all RRSP to RRIF in the next month. Why not, it’s not going anywhere and I have to do it anyways. And will make sure beneficiary or successor is in place too.

I chatted with Hubert and they pull from RRIF HISA first, then the term with lowest interest rate. They will let me choose a payment date and will allow me to change the date year to year. PERFCT! I can control it! I am laddered there and can always have more than needed in HISA before my chosen date.

I have yet to confirm with Oaken. They are a PITA with no HISA accounts. But maybe it will work for me once I hear how they work it and if the payment day can be flexible year to year. Will post when they respond. I am laddered there too but wife’s account is not.

June 7, 2020
3:26 am
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Sounds like a plan!

I have dealt with both Hubert and Oaken on this question.

Hubert is very easy to deal with, but I would advise, as a precaution, setting up the RIF cash account with no money in it and doing the beneficiary form before you convert. They will allow this. Confirm with them that they have rec'd the beneficiary form - takes several weeks in my experience. I put a sticky note on it asking them to email when rec'd, which they did. This provides you with verification.

I agree; Oaken is a PITA about this sort of thing, although I can see the reasoning. Because of their complex calculations as to where they draw the money from, it becomes very difficult, and too much work, to figure out what is going to happen and how much you will have in your various GICs at withdrawal, let alone end of year, if you want some precision.
Something to consider is to schedule your withdrawal dates to coincide with the anniversary dates for the GICs. This eliminates one level of confusion because you know what the balance wil be for determining the next interest payment without any mid-year withdrawals. But you may have other criteria that are relevant in deciding on the date.
I couldn't figure out any way to make it truly simple.

Yes, this is a good time to do it. Don't wait for bad weather or some mishap to get in the way. Fortunately, with these two FIs, you should be able to do it all without face-to-face. I don't think there is any advantage at all in waiting.

71 in 2020? then yes, 5.28 in 2021.

June 7, 2020
9:28 am
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Since this is RRPS/RIFF sort of discussion, what you folks would advise in this situation.
Person (60 years old) was downsized this year (reorg) with no much chance to gain employment due to obsolete skills (IT mainframe developer).
Some emergency savings put aside for similar situations will take her through 2021; so she needs money to survive 2022-2025 whew CPP/OAS will kick in.
Should she start withdrawing from her RRSP or start taking from her 'main savings' money?
RRSP is banking stocks and good mutual fund; main savings are GIC.
Thanks!

June 7, 2020
9:59 am
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Since this is RRPS/RIFF sort of discussion, what you folks would advise in this situation.
Person (60 years old) was downsized this year (reorg) with no much chance to gain employment due to obsolete skills (IT mainframe developer).

First be reassured it is not the end of the world. Similar happened to me 15 years ago, after 40 years of being a loyal employee at age 56.

Did the company offer counselling for re employment opportunities?

Was there severance?
Some can move to RRSP over and above the yearly limit.
Check the rules to find what the amounts are.

Was there a company pension?
Was their CPP bridged?

Did the person apply for employment insurance?

Person can apply for CPP at age 60.
What is their condition of health or life expectancy? Etc etc
There is lots to google about the pros and cons of taking CPP early.

If they take CPP early would their income at age 65 allow GIS along with OAS?

Some emergency savings put aside for similar situations will take her through 2021; so she needs money to survive 2022-2025 whew CPP/OAS will kick in.

See CPP comments above.

Should she start withdrawing from her RRSP or start taking from her 'main savings' money?

So I am 70 and don’t need to use any RRSP or RRIF. So my plan is to use non registered saving first and I continue to take a tax hit for withdrawing RRSP through RRIF (for tax deductions) and put those funds into TFSA and will also take more RRSP RRIF out to invest in GICs. So am trying to have lowest income in my 80’s.

But to answer properly some one needs to thoroughly analyze ALL their needs for expenses, rent, if owns home....property taxes etc, health insurance or self insure. So many things. And then decide what to spend first.

RRSP is banking stocks and good mutual fund; main savings are GIC.
Thanks!

Go more GIC? Turn on all interest to pay annually and use interest only to live on, if possible. They need some one to review everything before a decision is made.

BTW. After I was let go, a few months later I landed a good job for $60,000 a year.....worked 3 days.....quit.....and never looked for employment again.

June 7, 2020
11:09 am
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Pooreva.
Bottom line, there needs to be a complete overview of expenses, income, employment etc before you can provide an answer.

June 7, 2020
11:50 am
cruzinalong
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pooreva said
Since this is RRPS/RIFF sort of discussion, what you folks would advise in this situation.
Person (60 years old) was downsized this year (reorg) with no much chance to gain employment due to obsolete skills (IT mainframe developer).
Some emergency savings put aside for similar situations will take her through 2021; so she needs money to survive 2022-2025 whew CPP/OAS will kick in.
Should she start withdrawing from her RRSP or start taking from her 'main savings' money?
RRSP is banking stocks and good mutual fund; main savings are GIC.
Thanks!  

When I retired, I took funds from investments. Paid off loans. I took money from my RRSP when I needed it. Bills, travel whatever. CPP at 60. OAS at 65. If your income is low you collect GIS. It does not matter where the funds come from. Money is money. Everyone is UNIQUE.

June 7, 2020
2:02 pm
Loonie
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Los of good points have been made re: pooreva's friend. I have little to add at this point. If this person doesn't have a TFSA, then they should get one. As a general rule, RSPs should be looked t in terms of their tax impact upon withdrawal, and only secondarily as income. Much depends on how much she actually has in savings and in RSP; and does she own property?

June 7, 2020
6:40 pm
cruzinalong
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GICinvestor said

Since this is RRPS/RIFF sort of discussion, what you folks would advise in this situation.
Person (60 years old) was downsized this year (reorg) with no much chance to gain employment due to obsolete skills (IT mainframe developer).

First be reassured it is not the end of the world. Similar happened to me 15 years ago, after 40 years of being a loyal employee at age 56.

Did the company offer counselling for re employment opportunities?

Was there severance?
Some can move to RRSP over and above the yearly limit.
Check the rules to find what the amounts are.

Was there a company pension?
Was their CPP bridged?

Did the person apply for employment insurance?

Person can apply for CPP at age 60.
What is their condition of health or life expectancy? Etc etc
There is lots to google about the pros and cons of taking CPP early.

If they take CPP early would their income at age 65 allow GIS along with OAS?

Some emergency savings put aside for similar situations will take her through 2021; so she needs money to survive 2022-2025 whew CPP/OAS will kick in.

See CPP comments above.

Should she start withdrawing from her RRSP or start taking from her 'main savings' money?

So I am 70 and don’t need to use any RRSP or RRIF. So my plan is to use non registered saving first and I continue to take a tax hit for withdrawing RRSP through RRIF (for tax deductions) and put those funds into TFSA and will also take more RRSP RRIF out to invest in GICs. So am trying to have lowest income in my 80’s.

But to answer properly some one needs to thoroughly analyze ALL their needs for expenses, rent, if owns home....property taxes etc, health insurance or self insure. So many things. And then decide what to spend first.

RRSP is banking stocks and good mutual fund; main savings are GIC.
Thanks!

Go more GIC? Turn on all interest to pay annually and use interest only to live on, if possible. They need some one to review everything before a decision is made.

BTW. After I was let go, a few months later I landed a good job for $60,000 a year.....worked 3 days.....quit.....and never looked for employment again.

  

You were born the same year as I was. 1949. When we worked a TFSA did not exist. You plan on using RRSP/RRIF for TFSA. I have no plans for creating TFSA yet. I will wait until I see how much I have with RRIF withdrawals. Enjoy the summer.

June 7, 2020
7:27 pm
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Ha ha. You did the math!

I have been pulling RRSP funds out via RRIF for quite a few years to fuel all our TFSAs. I will treat TFSA as though it was RRSP money. RRIF income is splittable with spouse and gives you the pension deduction on your taxes but I had that deduction any ways. I stay in the lowest income tax bracket and will reduce my income in the future years with the benefit of TFSA to boot. I only took enough for TFSA but should have taken all I could have to stay in the lower income tax threshold. Stupid me.....ie $4000 extra and not going to TFSA is only an interest hit vs the full taxable amount in my older age years of taxation. So I plan any RRIF withdrawals that are over what I need for TFSA will go into a $1000 GIC category/group/ label as ex RRIF. Plan to use Hubert 1 year GICs for the cashable option. I am thinking to get my income as low as possible and if any income benefits come my way.....would be good. But if all I do....in the long run will head off any much higher income and higher % taxation. And for estate purpose RRSP or RRIF without a successor becomes heavily taxed at death. Next year any new or renewed TFSA will have interest paid annually and as $1000 accumulates will become a $1000 TFSA GIC that is pure interest and when the day comes to use TFSA funds those pure interest GICs will be used first. So bye bye to Oaken for TFSAs.
You can begin to withdraw RRSP or RRIF pretty much any time after you retire into lower income.

So managing my RRIF withdrawals with the various rules per FI is something for me to have to learn how to manipulate......oh er....manage.

June 7, 2020
9:58 pm
cruzinalong
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GICinvestor said
Ha ha. You did the math!

I have been pulling RRSP funds out via RRIF for quite a few years to fuel all our TFSAs. I will treat TFSA as though it was RRSP money. RRIF income is splittable with spouse and gives you the pension deduction on your taxes but I had that deduction any ways. I stay in the lowest income tax bracket and will reduce my income in the future years with the benefit of TFSA to boot. I only took enough for TFSA but should have taken all I could have to stay in the lower income tax threshold. Stupid me.....ie $4000 extra and not going to TFSA is only an interest hit vs the full taxable amount in my older age years of taxation. So I plan any RRIF withdrawals that are over what I need for TFSA will go into a $1000 GIC category/group/ label as ex RRIF. Plan to use Hubert 1 year GICs for the cashable option. I am thinking to get my income as low as possible and if any income benefits come my way.....would be good. But if all I do....in the long run will head off any much higher income and higher % taxation. And for estate purpose RRSP or RRIF without a successor becomes heavily taxed at death. Next year any new or renewed TFSA will have interest paid annually and as $1000 accumulates will become a $1000 TFSA GIC that is pure interest and when the day comes to use TFSA funds those pure interest GICs will be used first. So bye bye to Oaken for TFSAs.
You can begin to withdraw RRSP or RRIF pretty much any time after you retire into lower income.

So managing my RRIF withdrawals with the various rules per FI is something for me to have to learn how to manipulate......oh er....manage.  

I worked out how much to withdraw from RRSP to pay off TFSA each year. I did not bother. You are married. You can split certain types of income with your spouse. Company pension and CPP. I have some married friends. He said not many couples have two well paying incomes with company pensions. They save lots with income splitting.

June 8, 2020
2:21 am
2of3aintbad
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As far as I know, the 25% reduction in minimum withdrawal is for 2020 only. Has anyone seen where it is confirmed that this will continue beyond this year?

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