# New RRIF rules



## pwm (Jan 19, 2012)

The budget included changes to the RRIF withdrawal rules. It's still 1/(90-age) to 71 then changed as follows:


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## gibor365 (Apr 1, 2011)

Curious if factor was changed also for ages below 71?


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## OnlyMyOpinion (Sep 1, 2013)

See the table on page 9 of the gov'ts ways & means motion: http://www.budget.gc.ca/2015/docs/plan/nwmm-amvm-e.pdf for revised withdrawl percentages.


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## My Own Advisor (Sep 24, 2012)

Why have minimums at all? I never really understood this...still don't. Seems like too much bureaucracy to me.

Thanks for sharing pwm. Interesting to see the changes.


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## gibor365 (Apr 1, 2011)

My Own Advisor said:


> Why have minimums at all? .


True! I also never could`ve understand it... RRIFs and LIFs should be merged in single account type without any minimums and maximums


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## cainvest (May 1, 2013)

My Own Advisor said:


> Why have minimums at all? I never really understood this...still don't. Seems like too much bureaucracy to me.


The simple answer ... they want a continuous flow of tax dollars back each year.


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## GreatLaker (Mar 23, 2014)

The old minimums resulted in approximately the same dollar amount being withdrawn each year from age 71 up to about age 92, if the rate of return of the RRIF was around 6%. So it mimicked un-indexed pension income. Not sayin it makes sense, especially in today's low interest environment, but that seemed to be the logic.

Nonetheless, despite being 1.5 decades away from mandatory RRIF withdrawals I am happy they lowered it. I hated the thought of potentially having to withdraw more than I needed to live off, and seeing much of it taxed away and not being allowed to compound in the account.


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## My Own Advisor (Sep 24, 2012)

cainvest said:


> The simple answer ... they want a continuous flow of tax dollars back each year.


Yeah, I could see that  I guess I just wish things were more simple....meaning, the RRSP has a max. contribution limit to defer taxes, fine, but the RRIF shouldn't have one. Take out as much or as little as you need to live from. 

If the government wants to save money, get rid of all these tax rules that make no sense or add little value. Too much overhead and overhead costs money.

That should be an election issue.


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## cainvest (May 1, 2013)

A simpler solution would be nice but I don't see one in this case, well, from their point of view. The higher TFSA limit will help to provide some tax shelter on RIFF withdrawals so at least that part is nice. I wonder if the TFSA (with a few more rule tweaks) will replace RRSP in the future, that way they don't need a withdrawal system to get their tax credits back.


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## 0xCC (Jan 5, 2012)

cainvest said:


> A simpler solution would be nice but I don't see one in this case, well, from their point of view. The higher TFSA limit will help to provide some tax shelter on RIFF withdrawals so at least that part is nice. I wonder if the TFSA (with a few more rule tweaks) will replace RRSP in the future, that way they don't need a withdrawal system to get their tax credits back.


Just to be clear here, a TFSA does not allow the actual withdrawal from a RRIF to be sheltered from tax. It only allows the withdrawal from the RRIF to be immediately contributed to the TFSA so that future capital gains and income on that contribution are sheltered. If a person just spent the RRIF withdrawal the amount of income tax due would be the same in both cases.


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## uptoolate (Oct 9, 2011)

My Own Advisor said:


> Yeah, I could see that  I guess I just wish things were more simple....meaning, the RRSP has a max. contribution limit to defer taxes, fine, but the RRIF shouldn't have one. Take out as much or as little as you need to live from.
> 
> If the government wants to save money, get rid of all these tax rules that make no sense or add little value. Too much overhead and overhead costs money.
> 
> That should be an election issue.


And think of all of the bureaucrats that would be thrown out of work!!! Oh no! Isn't this how the PCs lost the last Ontario election. Going to cut 100,000 useless parasites!

The continuous tax flow argument is a bit lame as people die every year. If the government doesn't force me to withdraw from my RRIF I am likely to do so more conservatively thereby leaving more money invested for growth and more money left when I die and then.... Cha-Ching! 50% marginal rate on the top end of the RRIF. If I had taken it out earlier I would have paid much less in tax. (Ok granted it is my estate that is footing the final tax bill)


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## gibor365 (Apr 1, 2011)

> And think of all of the bureaucrats that would be thrown out of work!!! Oh no! Isn't this how the PCs lost the last Ontario election. Going to cut 100,000 useless parasites!


Exactly what i wanted to say!!!! 
bureaucrats are everywhere! Just look how many tax forms we have in Canada ! About 50 - 60?! Do we really need all of them?! And how much money financial imstitutions spend on managing/supporting them?!


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## fraser (May 15, 2010)

Yesterday I read an article in the Financial Post that pointed out something about RRIF.

When RRSP, RRIFs were first introduced, the prevailing interest rate was 8.5 percent. When you look at the withdrawal rates and compare them to the interest rates the picture looks much more attractive. Today, and even tomorrow with the changes, the spread between interest rates and percentage that must be taken into income is much lower. Capital depletes at a much faster rate than it did on inception. On inception, the spread was probably something like positive 2 percent for someone aged 71. Today, the interest spread is negative 2 percent. That negative four point spread is very significant over time.

It might be better to tie the withdrawal rate to average interest rate during the year, or the prior year, rather that re-calibrate the number every 20 years or so....or prior to an election.


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## kcowan (Jul 1, 2010)

RRIFs contain whatever the RRSP contained, so might include equities. Just enough bonds maturing to cover the 5% or so not covered by dividends.


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## agent99 (Sep 11, 2013)

For those of us who have already withdrawn the old 2015 minimum, we will apparently be able to correct this when we file our 2015 return next Spring. 

How exactly will that work? We already have the withdrawal money and have paid tax on it. How can that be reversed? 

Is there a procedure in place yet whereby we can re-contribute the excess withdrawal? As I understand it, we have up until Feb 29th too make a re-contribution. But perhaps we should do it sooner rather than later? But how?

If we make such a re-contribution, this will affect our 2015 taxes. If we have paid our first two quaterly installments based on last years taxes, we will likely get notices requesting the same for the next two. We can, I suppose, re-run our 2014 taxes and determine what they would have been with the lower withdrawal, then reduce our installments accordingly. So long as we don't underpay, anyone see anything wrong with doing that?


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## agent99 (Sep 11, 2013)

No replies here, so asked BMOIL. They say they won't be doing anything until the legislation is passed. After than they will contact us.


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## agent99 (Sep 11, 2013)

Budget received Royal assent on June 23rd, so now we have to wait for BMO et al to put something in place that will allow us to re-contribute part of our withdrawal?


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## steve41 (Apr 18, 2009)

It is one the most trivial coding changes.... I wouldn't be surprised if it was already done.


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## HaroldCrump (Jun 10, 2009)

fraser said:


> Yesterday I read an article in the Financial Post that pointed out something about RRIF.
> 
> When RRSP, RRIFs were first introduced, the prevailing interest rate was 8.5 percent. When you look at the withdrawal rates and compare them to the interest rates the picture looks much more attractive. Today, and even tomorrow with the changes, the spread between interest rates and percentage that must be taken into income is much lower. Capital depletes at a much faster rate than it did on inception. On inception, the spread was probably something like positive 2 percent for someone aged 71. Today, the interest spread is negative 2 percent. That negative four point spread is very significant over time.
> 
> It might be better to tie the withdrawal rate to average interest rate during the year, or the prior year, rather that re-calibrate the number every 20 years or so....or prior to an election.


I think the RRIF changes have more to do with increasing longevity than prevailing interest rates i.e. to avoid people running out of money before running out of life.
That said, I don't think these changes go far enough.

MoF is trying to balance retirement income optimization vs. govt revenue needs, as cainvest said above.


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> MoF is trying to balance retirement income optimization vs. govt revenue needs, as cainvest said above.


What come after 5% withdrawal? Now it is 5.34% but before it was 7.34%! Pretty easy to correct that mistake.


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## HaroldCrump (Jun 10, 2009)

kcowan said:


> What come after 5% withdrawal? Now it is 5.34% but before it was 7.34%! Pretty easy to correct that mistake.


I didn't understand what you mean.
Starting rate at 71 was reduced from 7.34% to 5.28%.
Are you suggesting make it 5%?

Last summer the CD Howe report suggested getting rid of mandatory withdrawal rules completely.
In fact, why have the concept of RRIFs at all - any withdrawals from RRSP counts as income anyway.
Get rid of the RRSP withdrawal penalty and treat all withdrawals as regular income.
Let the retiree decide how much to withdraw and when to.

An undesirable side effect of doing this, however, is that many retirees may not realize that if they withdraw too little, entire remaining balance becomes part of their estate and can get taxed punitively upon death.


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## My Own Advisor (Sep 24, 2012)

"Last summer the CD Howe report suggested getting rid of mandatory withdrawal rules completely.
In fact, why have the concept of RRIFs at all - any withdrawals from RRSP counts as income anyway.
Get rid of the RRSP withdrawal penalty and treat all withdrawals as regular income."

110% agree. Simplify the RRSP and RRIF rules and everyone wins. I would love to see this as an election issue.


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## RBull (Jan 20, 2013)

Put me down as another supporter of simplifying RRSP & RRIF rules and make them count as income. I want 100% control of how to deal with these. 

I also fail to see how changing this would be a negative for the government/taxpayers. People that managed to build a decent nest egg can figure out how to deplete this, and any excess amounts left at death is only a positive for taxpayers, heirs etc.


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## My Own Advisor (Sep 24, 2012)

For sure. Get rid of the bureaucracy associated with these rules and let DIY investors or financial advisors earn their pay in figuring out optimal tax treatment for withdrawal strategies. 

I have never understood, other than the bureaucracy ties to these rules, why the rules exist to any benefit to the consumer/investor.

Again, let's make this an election issue.


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## mrPPincer (Nov 21, 2011)

I agree 100% to simplifying the rules.

I converted mine to a RRIF at age 40, but now I've found myself adding to a new RRSP some years, it's an unnecessary level of regulation now that I think about it; I should be able to withdraw in low income years and add in other years of high income if I still have RRSP room. 
It would cut down on the red tape on their end (banks & CRA), not to mention PITA factor for us.


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## humble_pie (Jun 7, 2009)

My Own Advisor said:


> "Last summer the CD Howe report suggested getting rid of mandatory withdrawal rules completely.
> In fact, why have the concept of RRIFs at all - any withdrawals from RRSP counts as income anyway.
> Get rid of the RRSP withdrawal penalty and treat all withdrawals as regular income."
> 
> 110% agree. Simplify the RRSP and RRIF rules and everyone wins. I would love to see this as an election issue.



what an interesting concept. Abolish RRIFs. Keep RRSPs only. Adjust RRSP withdrawal policy so no WD penalties after a certain age.

i'd never heard of/thought about it. But the idea would fly.


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## andrewf (Mar 1, 2010)

There's no penalty for RRSP vs RRIF withdrawals per se, as far as I understand it. The difference is that RRSP withdrawals have tax withheld, while RRIF withdrawals do not, at minimum withdrawal rates. Both would attract the same amount of tax for a given amount withdrawn.


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## pwm (Jan 19, 2012)

andrewf: That's correct. Tax is withheld on the excess amount. If your RRIF withdrawal is the minimum for that year, then there is no tax withheld. For RRSPs the entire amount is considered excess, so the 10%/20%/30% rules apply. You end up paying the same tax on the income eventually in April.


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## pwm (Jan 19, 2012)

My wife's spousal RRSP is still not a RRIF yet, but I converted my RRSP to a RRIF last year when I turned 65. The reason was so that I could split half of my withdrawals with her on our 2014 income tax. You must be 65 and it must be a RRIF to do so. It's not considered "pension income" if it comes from an RRSP.


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> I didn't understand what you mean.
> Starting rate at 71 was reduced from 7.34% to 5.28%.
> Are you suggesting make it 5%?


The formula for minimum RRIF withdrawals is 1/(90-age) and that increases to 5% at age 70. Then at age 71 it would jump to 7.34%. They have made the transition a little smoother.


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## agent99 (Sep 11, 2013)

For those of us who have already drawn the old minimum amount for 2015, we will be able to re-contribute the excess to our RRIF up until end of Feb 2016. But so far, although legislation has passed, no mechanism for contribution is in place. 

Our OAS is being clawed back based on our 2014 return (that includes higher minimum withdrawal). And our instalment payments are higher than they should be. I guess I could try to calculate our 2015 taxes and ask for reductions. But with election coming, who knows what other changes may show up in a new budget?

Anyone else in this situation?


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## HaroldCrump (Jun 10, 2009)

humble_pie said:


> what an interesting concept. Abolish RRIFs. Keep RRSPs only. Adjust RRSP withdrawal policy so no WD penalties after a certain age.
> i'd never heard of/thought about it. But the idea would fly.


Here is the link to the report on their website

Unfortunately, the personal finance aspect of the elections is focusing on meaningless shell games like UCCB and not on changes that can have a material impact to most people's finances.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> There's no penalty for RRSP vs RRIF withdrawals per se, as far as I understand it. The difference is that RRSP withdrawals have tax withheld, while RRIF withdrawals do not, at minimum withdrawal rates. Both would attract the same amount of tax for a given amount withdrawn.


I mean to say the withholding, not a penalty.
If/when mandatory withdrawal requirements are removed, there would be no need for a RRIF program at all, and thus no need for an RRSP withdrawal withholding.


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## agent99 (Sep 11, 2013)

agent99 said:


> For those of us who have already drawn the old minimum amount for 2015, we will be able to re-contribute the excess to our RRIF up until end of Feb 2016. But so far, although legislation has passed, no mechanism for contribution is in place.
> 
> Our OAS is being clawed back based on our 2014 return (that includes higher minimum withdrawal). And our instalment payments are higher than they should be. I guess I could try to calculate our 2015 taxes and ask for reductions. But with election coming, who knows what other changes may show up in a new budget?
> 
> Anyone else in this situation?


Just tried working out what our taxes owing will be after we make the re-contribution to RRIF. Need to adjust our instalments which are too high. Maybe I will ask question in Taxation forum


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## agent99 (Sep 11, 2013)

Received letter from BMO Investorline explaining the changes in Minimum withdrawal and advising of our new individual withdrawal amounts.

A form was included that allowed us to elect to make a re-contribution. It had provision for cash re-contribution or in-kind re-contribution. We checked with them and found it was acceptable to make an in-kind transfer from our TFSAs. We have until Feb 29th to make the re-contribution, but we decided to do it now (from TFSAs). I hope I thought this out correctly . 

We may very well transfer the same securities back to TFSAs when we make our 2016 withdrawal. Seems silly, but that's the way it works, it seems.


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## agent99 (Sep 11, 2013)

agent99 said:


> Received letter from BMO Investorline explaining the changes in Minimum withdrawal and advising of our new individual withdrawal amounts.
> 
> A form was included that allowed us to elect to make a re-contribution. It had provision for cash re-contribution or in-kind re-contribution. We checked with them and found it was acceptable to make an in-kind transfer from our TFSAs. We have until Feb 29th to make the re-contribution, but we decided to do it now (from TFSAs). I hope I thought this out correctly .


BMO didn't act on my instructions and want me to call them for clarifications. Haven't done that yet.

I did find out a little more.

It may be better to wait until after Jan 1st before making re-contribution. Reason being, your RRIF balance will be lower at year end and as a result your required withdrawal minimum will be lower. But will they later adjust for this? Apparently not. From CRA:http://www.cra-arc.gc.ca/gncy/bdgt/2015/qa02-eng.html



> 7. Will a re-contribution made in 2016 affect the minimum amount calculation for 2016?
> 
> No. The minimum amount for 2016 is based on the fair market value of the RRIF property at the beginning of 2016.


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> ... If/when mandatory withdrawal requirements are removed, there would be no need for a RRIF program at all, and thus no need for an RRSP withdrawal withholding.


My impression is that the RRSP was created and had with holding taxes applied to it before the RRIF was created.

Either way - the only purpose I can see to a with holding tax that is reconciled on one's tax return is to smooth out the taxes owed. I'm not sure the gov't will translate a change to the RRIF rules to mean also dropping the RRSP with holding tax.


Cheers


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## RBull (Jan 20, 2013)

Eclectic12, I suspect it has less to do with tax smoothing and more to do with guaranteeing the government gets its money right away, and gets a larger % initially(until reconciled at tax time), than without the withholding at source. 

IMO, the current RSP withholding rates are too high based on the withdrawal amounts. ie $15K = 30% withholding tax...ridiculous. This assumes someone has significant other income. The tier amounts should be doubled+ and/or the withdrawal tax rate lowered.

I keep my withdrawals to $5K at a time late in the year, taxes = 10% and pay the balance owing at tax time. It's slightly tedious doing more withdrawal transactions but over the next 15 years (until RRIF time) keeping 20% of these funds for an extra 6 months+ gives us a small return vs handing it off to our govt. I'm told by my institution "CRA discourages this practice" but this could just be because its more work for them, and I pay no withdrawal fees.


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## HaroldCrump (Jun 10, 2009)

Eclectic12 said:


> Either way - the only purpose I can see to a with holding tax that is reconciled on one's tax return is to smooth out the taxes owed. I'm not sure the gov't will translate a change to the RRIF rules to mean also dropping the RRSP with holding tax


I agree that the two can be logically separated (i.e. decommissioning of the RRIF account type, and RRSP withdrawal withholding taxes).
If that's done, I'd also expect the CRA/MoF to come up with a T1213-equivalent to reduce or stop withholding taxes on RRSP withdrawals.

For retirees that are using RRSP withdrawals are their primary source of retirement income, it makes sense to offer them this flexibility.


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## RBull (Jan 20, 2013)

HC, I am the latter and would welcome a change like that.


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## Eclectic12 (Oct 20, 2010)

RBull said:


> Eclectic12, I suspect it has less to do with tax smoothing and more to do with guaranteeing the government gets its money right away, and gets a larger % initially(until reconciled at tax time), than without the withholding at source.
> 
> IMO, the current RSP withholding rates are too high based on the withdrawal amounts. ie $15K = 30% withholding tax...ridiculous. This assumes someone has significant other income.


All the more reason for me to suspect that dismantling the RRIF and RRSP with holding tax would not be tied together.






RBull said:


> HaroldCrump said:
> 
> 
> > ... If that's done, I'd also expect the CRA/MoF to come up with a T1213-equivalent to reduce or stop withholding taxes on RRSP withdrawals.
> ...


Makes sense ... but then again gov't and taxes don't necessarily follow suit. :biggrin:


Cheers


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## RBull (Jan 20, 2013)

Eclectic12 said:


> All the more reason for me to suspect that dismantling the RRIF and RRSP with holding tax would be tied together.
> 
> 
> 
> ...


I hope you're right about the first part. 

The second part is the big question though.


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## HaroldCrump (Jun 10, 2009)

RBull, after the outcome of last week's election, RRIF rules are purely a theoretical, wishful discussion.
Don't expect any changes for next several years.


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## Eclectic12 (Oct 20, 2010)

Oppps .. I dropped the "not" and have since re-added it post #41. 


My perception that the two accounts were created at different times suggested the gov't might deal with them separately (i.e. drop RRIF would not automatically lead the gov't of the day to say "we now must dismantle the RRSP withholding tax").

The gov't benefiting from the with holding tax on RRSP withdrawals by sending it to them earlier instead of waiting for the tax return to be filed seems like a second reason. It is also likely a more powerful reason to stay the course for RRSPs regardless of what happens to the RRIF.


Sorry for any confusion.


Cheers


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## RBull (Jan 20, 2013)

HaroldCrump said:


> RBull, after the outcome of last week's election, RRIF rules are purely a theoretical, wishful discussion.
> Don't expect any changes for next several years.


No worries. I have no illusions. Things are working out fine. 



Eclectic12 said:


> Oppps .. I dropped the "not" and have since re-added it post #41.
> 
> 
> My perception that the two accounts were created at different times suggested the gov't might deal with them separately (i.e. drop RRIF would not automatically lead the gov't of the day to say "we now must dismantle the RRSP withholding tax").
> ...


No issues here. We'll keep doing what we're doing now.


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