Seniors: Should I Withdraw Less from My RIF in 2020?
In March, the Federal Government reduced the 2020 minimum withdrawal amounts from a Registered Retirement Income Fund (RIF) by 25 percent “in recognition of volatile market conditions and their impact on many seniors’ retirement savings.”
Withdraw Less from Your RIF?
While the lower withdrawal requirement allows investments within a RIF more time to potentially recover from a market downturn, there may be other opportunities for seniors who don’t require RIF income.
You may consider, instead, transferring investments “in kind”‘ from a RIF to a Tax-Free Savings Account (TFSA), subject to available TFSA contribution room. While the withdrawal from the RIF will be taxable in the year of transfer, should investments recover, the TFSA will generate no taxable income on future withdrawals or investment income, unlike the RIF.
There may be an additional tax opportunity. For seniors who have a lower marginal tax rate today than they expect to have in the future (including at death), drawing RIF income above the minimum levels may be a way to potentially lower an overall lifetime tax bill. RIF withdrawals will be taxed at the current, lower tax rate, instead of at a higher anticipated future marginal tax rate. If these funds are invested in a TFSA, any future gains will not be subject to the higher future marginal tax rates. Note that withholding taxes will apply to RIF withdrawals in excess of the minimum amount. Also, keep in mind that the effect on any income-tested government benefits should be considered when contemplating this strategy.
Note that the reduction in the minimum withdrawal factors for the 2020 year also applies to Life Income Funds and other locked-in RIFs. If you have already withdrawn more than the lower minimum amount in 2020, you are not permitted to re-contribute any excess to your RIF.
Contact your financial advisor for assistance with this or any other RIF matters or seek advice from a tax professional.
2019 Tax Balances and Instalments Due Sept. 1, 2020
Reminder: The Canada Revenue Agency (CRA) has extended the deadline for balances and instalments due to Sept.1, 2020.
For those who follow regular calendar remittances, keep in mind that the Sept.15 quarterly remittance occurs just two weeks later. As such, plan ahead to help avoid cash flow issues. However, if income has dropped significantly in 2020 compared to what was initially anticipated, the amount required for the instalment payment may be less than what was originally planned. The advice of a tax professional regarding your situation may be beneficial.