Withdrawing from RRSPs before age 71?
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    Withdrawing from RRSPs before age 71?

    Looking for some comments. When & how does it make sense to start withdrawing income from RRSPs prior to age 71 - when presumably, one has to convert them to RRIFs? Say, in the years age 65-70? Just a matter of doing some calculations on your tax bracket(s)? OR...better to just let it sit there 'til you have to convert?

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    Senior Member pwm's Avatar
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    When I hit 65 I converted my RRSP to a RRIF and started aggressive withdrawals. Two reasons:

    1). You can transfer 50% of the payment to your wife. You need to be 65 and it must be a RRIF to do so. She did not work and I'm trying to get as much income in her name as possible.
    2). I'm delaying OAS until 70. I'm well into claw-back territory and I want my RRIF to be very small at that time so as to minimize the penalty.

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    Senior Member heyjude's Avatar
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    I am withdrawing some RRSP funds early as well. If I don't, RMDs will force me into the highest tax bracket at age 71. Instead, I choose to pay some tax now in a lower bracket. Another reason to create a RRIF at age 65 is to take advantage of the $2000 pension tax credit.

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    I would think a starting point would be to add up all of one's income for that age to see how much income from all sources (don't forget investments, all forms of pension etc.).

    Then there's looking at scenarios ... for example, some have posted they converted half or more of the RRSP to a RRIF at or before 65 to have low RMDs as well as spread out the income.


    One thing to watch out for is that a direct RRSP withdrawal may have a withdrawal fee where other's have posted that their financial institution does not charge fees for RRIF payments.


    Cheers

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    Senior Member carverman's Avatar
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    Quote Originally Posted by Eclectic12 View Post
    I would think a starting point would be to add up all of one's income for that age to see how much income from all sources (don't forget investments, all forms of pension etc.).

    Then there's looking at scenarios ... for example, some have posted they converted half or more of the RRSP to a RRIF at or before 65 to have low RMDs as well as spread out the income.


    One thing to watch out for is that a direct RRSP withdrawal may have a withdrawal fee where other's have posted that their financial institution does not charge fees for RRIF payments.

    I opened up an RRSP last year (age 70) and will have to convert it to a RIF by end of this year as I have already turned 71.

    The problem I have now is that the reason that I opened up my RRSP last year, was to have a tax sheltered vehicle for my Nortel settlement lump sum, estimated to be around
    ($24k-40K).

    Unfortunately, the early settlement I was expecting in Apri, l is not going to materialize because two former employees on LTD, have filed a lawsuit against the
    Nortel estate in Ontario court of Appeal, which was waived by the appeal court judges.

    The two employees are now considering hiring a constitution lawyer and taking it to the SoC as a human rights issue.

    http://www.cbc.ca/news/canada/ottawa...ourt-1.3950833


    I was wondering if this case is accepted by the SoC, what should I do with my RRSP conversion ($2500) before December 31st.
    I would like to avoid paying a bigger tax hit for just ONE year when I finally receive my settlement.

    Anybody have some viable ideas what to do?

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    Quote Originally Posted by carverman View Post
    Anybody have some viable ideas what to do?
    If you're married and your wife is younger, maybe you can opt for it to be a spousal RRSP deposit. You can still do spousal for a spouse < 71.

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    Quote Originally Posted by carverman View Post
    ... I was wondering if this case is accepted by the SoC, what should I do with my RRSP conversion ($2500) before December 31st. I would like to avoid paying a bigger tax hit for just ONE year when I finally receive my settlement.
    Anybody have some viable ideas what to do?
    You obviously have no choice but to convert it to a RRIF and take first payment in 2018.
    Why wouldn't you just set it up to withdrwal the minimum (5.28% or $132 if you are age 71 at start of 2018)? You are only required to withdraw the minimum, but you can take out more if you choose to.
    I'm not certain - but I believe once the settlement does come in, you will be able to have it go into the RRIF (or LIF)?

    Boy, ex-CEO Dunn's claim for $120MM must make him popular. A guy's got to look after his retirement after all.
    Last edited by OnlyMyOpinion; 2017-03-16 at 12:26 PM.

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    Senior Member GreatLaker's Avatar
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    Same here. In first year of retirement I plan to transfer some RRSP funds to a RRIF, then from retirement to age 71 I will withdraw a set amount ($ 5 figures) from RRIF each year in order to minimize OAS clawback when mandatory conversion of all RRSP to RRIF takes place.

    Another factor is for a couple when the first spouse passes away the RRSP/RRIF passes to the surviving spouse. Depending on the size of both RRIFs that may cause the tax rate of the surviving spouse to go much higher due to larger mandatory RRIF withdrawals. This one is very difficult to model, since lifespan can only be guessed at.

    The article at this link explains it in a lot of detail.
    http://www.rgafinancial.com/articles...Retirement.pdf

    Note the above article is a couple of years old, so it does not mention the possibility of deferring OAS to 70. The tax rates mentioned are from Alberta. Taxtips.ca is a good site to get current tax rates by province.
    Invest your time actively and your money passively.

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    Quote Originally Posted by GreatLaker View Post
    Same here. In first year of retirement I plan to transfer some RRSP funds to a RRIF, then from retirement to age 71 I will withdraw a set amount ($ 5 figures) from RRIF each year in order to minimize OAS clawback when mandatory conversion of all RRSP to RRIF takes place.
    Every case is different of course. In my case, I spreadsheeted the scenario you point out, and when I included the loss of tax deferred compounding from retirement to age 71, the results ended in a wash. No amount of manipulating the data worked in my favour to any degree that would make me take the leap to start withdrawing from those tax deferred funds. I also had to include the taxes now created from those new funds withdrawn that were now in a taxable account. The introduction of the TFSA helped a bit with the situation, but never enough to make me pull the trigger. Every scenario I tried usually resulted in an advantage in my favour after age 90, so I decided I would wait until they force me to convert. Lots of things can happen by then, the least of which has already started by the lowering of the percentage of mandatory withdrawals.

    But again, every case is different, so if anyone thinks this tactic is a slam dunk should do some detailed examination.

    ltr

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    Quote Originally Posted by like_to_retire View Post
    Every case is different of course. In my case, I spreadsheeted the scenario you point out, and when I included the loss of tax deferred compounding from retirement to age 71, the results ended in a wash. No amount of manipulating the data worked in my favour to any degree that would make me take the leap to start withdrawing from those tax deferred funds. I also had to include the taxes now created from those new funds withdrawn that were now in a taxable account. The introduction of the TFSA helped a bit with the situation, but never enough to make me pull the trigger. Every scenario I tried usually resulted in an advantage in my favour after age 90, so I decided I would wait until they force me to convert. Lots of things can happen by then, the least of which has already started by the lowering of the percentage of mandatory withdrawals.
    But again, every case is different, so if anyone thinks this tactic is a slam dunk should do some detailed examination.
    ltr
    Very good points. That is where we have landed at this point as well, although we do plan a minimum RRSP>RRIF conversion at 65 to take advantage of the pension tax credit (we have no other pension income).

    It is also possible for OAS rules to be changed by future governments as payouts increase and federal debt grows. So planning your retirement income streams on the basis of maximizing OAS carries that risk.
    Last edited by OnlyMyOpinion; 2017-03-16 at 11:43 AM.

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