# Snowbirds can draw US$ from RRIF as part of required annual withdrawal



## agent99 (Sep 11, 2013)

From RFD:

http://forums.redflagdeals.com/acquiring-us-snowbirding-seniors-others-2223300/

another advantage of having a US$ side to RRIF.s


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## My Own Advisor (Sep 24, 2012)

Yes, just have to be mindful of USD $$ to CDN $$ conversion, for CRA reporting - should not affect what actually goes into your account but that said the investor will need to be mindful of RRIF min. or maximum withdrawals I suspect as it relates to USD $$ withdrawals.


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## agent99 (Sep 11, 2013)

My Own Advisor said:


> Yes, just have to be mindful of USD $$ to CDN $$ conversion, for CRA reporting - should not affect what actually goes into your account but that said the investor will need to be mindful of RRIF min. or maximum withdrawals I suspect as it relates to USD $$ withdrawals.


BMOIL tells us at beginning of year how many C$ RRIF holder has to withdraw (The minimum required withdrawal) There is no maximum withdrawal. If you draw more than the minimum there will just be a withholding tax on the excess amount. We usually make just one withdrawal of the exact minimum required at beginning of year. Now we will include enough US$ in that to cover our USA winter costs. Half of it will be from US$ dividends.

The value of the US$ withdrawn is calculated in C$ on the day the withdrawal is made, so no big deal knowing how much you have withdrawn. No different really than withdrawing a stock "in kind". BMOIL figure it out at time of withdrawal.

The big advantage I see, is the ability to sell a stock (on US side) that we may have held in RRSP/RRIF for some time and not be faced with CG taxes as we would in taxable accounts.


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## My Own Advisor (Sep 24, 2012)

agent99 said:


> BMOIL tells us at beginning of year how many C$ RRIF holder has to withdraw (The minimum required withdrawal) There is no maximum withdrawal. If you draw more than the minimum there will just be a withholding tax on the excess amount. We usually make just one withdrawal of the exact minimum required at beginning of year. Now we will include enough US$ in that to cover our USA winter costs. Half of it will be from US$ dividends.
> 
> The value of the US$ withdrawn is calculated in C$ on the day the withdrawal is made, so no big deal knowing how much you have withdrawn. No different really than withdrawing a stock "in kind". BMOIL figure it out at time of withdrawal.
> 
> The big advantage I see, is the ability to sell a stock (on US side) that we may have held in RRSP/RRIF for some time and not be faced with CG taxes as we would in taxable accounts.


Sorry, true, I should have clarified I meant exceeding RRIF min. in context to withholding taxes.
https://www6.royalbank.com/assets/d...nce/account-types/RegPlansMinMaxTable2018.pdf

Interesting to know about BMOIL. 

I guess I just see that some investors would take out withdrawals from RRIF during potentially multiple times per year.


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## humble_pie (Jun 7, 2009)

agent99 said:


> The big advantage I see, is the ability to sell a stock (on US side) that we may have held in RRSP/RRIF for some time and not be faced with CG taxes as we would in taxable accounts.




selling a stock in either CAD or USD RRSP or RRIF would not trigger capital gains within the registered retirement account itself.

however, the dollar amount of the gain does not escape taxation in either currency. In most cases, such gains will be more harshly taxed at 100% when withdrawn from a RRIF than they would have been if realized as taxable capital gains within a non-registered account. The inclusion rate for taxable capital gains is only 50%.

in a typical RRSP scenario, there is a time delay between a capital gain realized in RRSP and its eventual withdrawal many years hence via a RRIF. This time delay permits the gains to be compounded and reinvested in the tax-sheltered environment, so the resulting stream of wealth helps to offset the inevitable final 100% tax bite at the end.

however in a RRIF the time frame between capital gain realized from disposition of a security and withdrawal of the gain dollars is greatly compressed. There are no decades or even years to grow the wealth stream, so the 100% RRIF withdrawal tax bite hits harder.


.


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## agent99 (Sep 11, 2013)

humble_pie said:


> however in a RRIF the time frame between capital gain realized from disposition of a security and withdrawal of the gain dollars is greatly compressed. There are no decades or even years to grow the wealth stream, so the 100% RRIF withdrawal tax bite hits harder.
> 
> 
> .


The above post totally misses the point. You have to withdraw the prescribed minimum each year and pay tax on it.


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## Eclectic12 (Oct 20, 2010)

agent99 said:


> ... The big advantage I see, is the ability to sell a stock (on US side) that we may have held in RRSP/RRIF for some time and not be faced with CG taxes as we would in taxable accounts.


Let's see ... selling a US stock for $5K that will be fully taxed when withdrawn from the RRIF is a "big advantage" compared to selling for $5K in the taxable account that after expenses gives a $2K CG which is taxed as $1k?

Reporting $5k income seems a disadvantage compared to reporting $1K taxable CG.


Where I can see an advantage is if the RRIF US stock has gone stale or is dropping and the taxable US stock is keeping on growing.


What am I missing?


Cheers


*PS*
Or to put it another way, I can see reasons one may prefer the RRIF route when choosing between the two ... just not "avoiding CG" as a reason.


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> Let's see ... selling a US stock for $5K that will be fully taxed when withdrawn from the RRIF is a "big advantage" compared to selling for $5K in the taxable account that after expenses gives a $2K CG which is taxed as $1k?
> 
> Reporting $5k income seems a disadvantage compared to reporting $1K taxable CG.
> 
> ...


What you are missing, is fact that you HAVE to withdraw from your RRIF each year. The minimum amount is calculated at beginning of each year. The withdrawal can be made up of C$ in cash, US$ in cash plus Canadian or other securities "in kind". So long as the total is equal to or more than the required minimum. 

We can sell a US stock in RRIF in US$ and withdraw the cash in US$ as part of our minimum withdrawal. You pay no more tax than if you withdrew C$ cash or anything else and you don't create a capital gain.

ADDED:
- Post below (on ignore, but saw on phone) seems to think that selling a stock in taxable account (to generate US$ for snowbirding) and paying tax on the resulting CG on top of the tax we are required to pay on minimum RRIF withdrawals anyway is preferable to just paying tax on the minimum withdrawal (that can include the US$ required) Hmm - Paying more tax is better??????
- An alternative might be to withdraw C$ in cash from RRIF. Then convert it to US$. Same tax on withdrawal as drawing equivalent in US$, but then you have to pay the bank the FX fees. If you have or can generate US$ in RRIF free of FX charges, why not use it?


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## humble_pie (Jun 7, 2009)

agent99 said:


> The above post totally misses the point. You have to withdraw the prescribed minimum each year and pay tax on it.




alas, the party who is missing the point is the party who believes the fantasy that he can escape capital gains taxation via a RRIF

no chartered accountant would support such a view. Every chartered accountant would cite the 100% income tax inclusion rate for mandatory RRIF withdrawals vs the 50% inclusion rate for true capital gains in non-registered account. IE taxation consequences of capital gains dispositions are far more harsh in RRIF accounts than in non-registered accounts.

any party who would claim that his 100% taxable RRIF withdrawal means he is avoiding taxation on his capital gains is fooling himself. All he is doing is replacing what would have been 50% inclusion rate as capital gains from non-registered account, with 100% taxable inclusion rate when gains are withdrawn from RRIF.

let's look at a simple comparative example. Taxpayer realizes a capital gain of 10,000 in his RRIF. At the same time taxpayer sells securities in non-registered account to realize another capital gain of 10,000 in non-registered.

taxpayer then withdraws his annual mandatory minimum from RRIF. For simplicity's sake, let's say this mandatory minimum is 10,000. Let's say this taxpayer's marginal tax rate is 50%.

taxation on 10,000 RRIF withdrawal: _Income tax payable will be $4,000_ ($10k less 2k pension deduction) = 8,000 x 50% MTR

taxation on 10,000 capital gain in non-registered: _Income tax payable will be $2,500_ (10k/2) x 50% MTR

the same capital gains realized in an RRSP might be less pernicious because the long time frame would allow the gains proceeds inside the tax-sheltered account to be reinvested and to hopefully accumulate further gains as well as dividends. However the luxury of this long time frame is not available to the RRIF holder. 

at the end of the day, when faced with mandatory RRIF withdrawals, only a cosmetic interpretation of the data would say i'm-overjoyed-to-pay-100%-RRIF-withdrawal-taxes-instead-of-50%-capital-gains-taxes.

i for one believe it's a bit misleading to advise others that RRIF withdrawals mean escaping capital gains taxation. It's particularly misleading to suggest that RRIF withdrawals in USD, as opposed to RRIF withdrawals in CAD, mean any kind of enhanced income tax consequences.

,


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## GreatLaker (Mar 23, 2014)

humble_pie said:


> selling a stock in either CAD or USD RRSP or RRIF would not trigger capital gains within the registered retirement account itself.
> 
> however, the dollar amount of the gain does not escape taxation in either currency. In most cases, such gains will be more harshly taxed at 100% when withdrawn from a RRIF than they would have been if realized as taxable capital gains within a non-registered account. The inclusion rate for taxable capital gains is only 50%.
> 
> ...


Michael James on Money has a well reasoned blog post that documents how withdrawals from a tax sheltered account (RRSP/RRIF) are not more harshly taxed than withdrawals from taxable accounts. The tax on withdrawals from tax-deferred accounts is simply the deferred tax from the original contribution (usually in the form of an income-tax refund), adjusted for investment gains in the account, whereas capital gains taxes and dividend taxes on taxable accounts are additional incremental taxes.

Here are some of his comments:



> It is tax rates that determine whether an RRSP or TFSA will work out better for Ami, but the drag of capital gains taxes in non-registered accounts makes them a worse choice than TFSAs and usually worse than RRSPs.





> This tax drag has a cumulative compounding effect that builds up very significantly over time. A TFSA is far preferable for dividends, and except for the most extreme cases of higher tax rates in retirement, a long-term RRSP is preferable to a long-term non-registered account. Once again, we find that the tax-efficiency of dividends in a non-registered account versus an RRSP is a myth.


https://www.michaeljamesonmoney.com/2014/03/debunking-rrsp-myths-with-pictures.html

Thoughts? Comments? Rebuttals?? It's something that a lot of investors struggle with so comments will be appreciated.


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## agent99 (Sep 11, 2013)

GreatLaker said:


> Thoughts? Comments? Rebuttals?? It's something that a lot of investors struggle with so comments will be appreciated.


I think the observations are accurate. I have had that discussion with economist fiends. However, when it comes to RRIFs, we are required to withdraw the minimum anyway, so unless retiree even needs more, no need to withdraw from taxable account.

However, what we were discussing here, is a different subject. 

A retiree wants to draw say US$5,000 for their trip South. They could sell a dual listed stock on US side in their taxable account. If that stock had a sizable capital gain, they would have to pay the CG tax at tax time. 

*Or,* they could sell the same stock (or any other) on the US side of their RRIF and transfer the US$ generated out as part of their minimum required annual RRIF withdrawal.

In the latter case, (RRIF withdrawal) they pay no MORE tax than they would have if they did not make the withdrawal. 

In the first case, (draw from taxable account) they pay an additional tax if CGs are generated. 

Pretty clear cut as to which one is more tax friendly.


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## AltaRed (Jun 8, 2009)

I don't get the point of the example. Why would anyone sell twice the amount of X than you have too? Selling X in USD stock in taxable account PLUS withdrawing X minimum withdrawal in USD from selling an inter-listed or US domiciled stock in a RRIF is selling twice as much as needed. Just don't sell X in the taxable account to begin with. There is nothing magic about that....given of course one has a dual listed, or US domiciled stock, in the RRIF to begin with.

P.S. I agree with the observations as well. There have been several mathematical examples that show equivalence, assuming tax rates stay the same in both cases.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I don't get the point of the example. Why would anyone sell twice the amount of X than you have too? Selling X in USD stock in taxable account PLUS withdrawing X minimum withdrawal in USD from selling an inter-listed or US domiciled stock in a RRIF is selling twice as much as needed. Just don't sell X in the taxable account to begin with. There is nothing magic about that....given of course one has a dual listed, or US domiciled stock, in the RRIF to begin with.
> 
> P.S. I agree with the observations as well. There have been several mathematical examples that show equivalence, assuming tax rates stay the same in both cases.


Alta, The example was one or the other, not both. And as you concluded, drawing from RRIF is the lower cost way of generating the required US$. Only posted the simple example for clarification, because of some earlier posts. As you say - nothing magic about it.


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## AltaRed (Jun 8, 2009)

agent99 said:


> Alta, The example was one or the other, not both. And as you concluded, drawing from RRIF is the lower cost way of generating the required US$. Only posted the simple example for clarification, because of some earlier posts. As you say - nothing magic about it.


To be clear though, it has nothing to do with being uniquely USD. The value is in the time value of tax deferment over the years/decades, like any other asset.


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## Eclectic12 (Oct 20, 2010)

The way I understand it, the USD is simply a need. 
The time value in tax deferment has been happening while the mix of CAD and USD assets are held in the RRSP/RRIF.

The advantage of understanding that one can decide to withdraw a mix of CAD and USD as part of the minimum RRIF withdrawal is that one keeps the annual tax bill constant while meeting both CAD and USD needs.


Like a lot of other situations - there are key factors such as having enough USD assets to cover one's USD needs, having the RRIF minimum large enough to cover everything etc.


Cheers


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## AltaRed (Jun 8, 2009)

Eclectic12 said:


> having the RRIF minimum large enough to cover everything etc.


Nothing saying one cannot take out more than the minimum either if that is where the USD, or interlisted, assets are. Ultimately, one manages their cash flow needs by withdrawing from the account(s) that make the most sense.


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> The way I understand it, the USD is simply a need.


This is true for us. Good summary. 

We _need_ about US$10k to cover our winter costs and endeavor to acquire it in the most tax efficient manner.

If we needed C$ instead of US$, we have same choice. 
- Sell something in taxable account and perhaps incur CG taxes. (not attractive)
- Sell something in RRIF and draw the cash as part of the required minimum withdrawal and don't pay any additional taxes. (better!)

I avoid selling anything with large CG in taxable account unless I have a loss to offset it. I have run out of significant losses, so the RRIF route suits us.

I realize that this is very basic stuff for most of us retirees.


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> Nothing saying one cannot take out more than the minimum either if that is where the USD, or interlisted, assets are ...


The advantage outlined in post # 3 is keeping the tax bill constant. I suspect that should going the RRIF route require more than the minimum withdrawal - the tax advantaged CG from selling taxable account USD assets would be more attractive. Agent99 can confirm.


Cheers


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## AltaRed (Jun 8, 2009)

There is no such thing as a constant tax bill on an annual basis. Differences in taxable account income year to year guarantee it. It is simply a matter of the best place for tax efficiency, e.g. minimum RRIF withdrawals plus top up from taxable accounts. The amounts from the latter could be a whole host of opportunities, e.g. investment income alone, or supplemented by a maturing GIC (no CG gain or loss), or selling an asset with an unrealized cap gain or cap loss. Whether some of the need is USD or not is simply another part of the decision in the choice of assets to be sold and where from. The discussion here seems to have become rather theoretical.


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> The advantage outlined in post # 3 is keeping the tax bill constant. I suspect that should going the RRIF route require more than the minimum withdrawal - the tax advantaged CG from selling taxable account USD assets would be more attractive. Agent99 can confirm.
> 
> 
> Cheers


*E12*: Not keeping tax bill constant. More not increasing it by creating an additional capital gain in taxable account. 

*Alta*: In our case, this is not theoretical. I have recently re-arranged our investments to suit our immediate US$ needs.
- I now have US$ ADRs as well as Canadian stocks that pay US$ dividends (on US$ side of RRIFs )to generate about 60% of our US$ needs in form of dividends. 
- We still have some losses on Crescent Point in taxable account. So we will sell some of those on US side along with another dual listed stock with high CGs to balance gains/losses. 
These two actions will provide all the US$ we need this winter.

The US$ dividends will continue through 2019 and be withdrawn as part of MRW in January 2020. At that time, if we need more US$, we will likely sell any dual listed stock on US side in RRIF and draw the resulting US$ along with our US$ dividends.

Prior to this, I used NG or selling taxable a/c stocks on US side to generate US$ needed. I had not realized that I could also funnel US$ out of RRIF without paying any FX and not have to worry about creating CGs.


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## GreatLaker (Mar 23, 2014)

agent99 said:


> I think the observations are accurate. I have had that discussion with economist fiends. However, when it comes to RRIFs, we are required to withdraw the minimum anyway, so unless retiree even needs more, no need to withdraw from taxable account.
> 
> However, what we were discussing here, is a different subject.
> 
> ...


I was responding to the concerns stated by another poster about the tax effectiveness of withdrawing from tax-deferred vs. taxable accounts. I realize it's a peripheral issue to your original post, but I thought the article to which I linked was well written and worth sharing.


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## agent99 (Sep 11, 2013)

GreatLaker said:


> I was responding to the concerns stated by another poster about the tax effectiveness of withdrawing from tax-deferred vs. taxable accounts. I realize it's a peripheral issue to your original post, but I thought the article to which I linked was well written and worth sharing.


One observation about the article. They lumped RRSPs and RRIFs together. However, there is a difference in that we are *required* to draw from a RRIF, while we are not required to draw from a RRSP or a taxable account, for that matter. 

If we are going to pay tax regardless on our minimum RRIF withdrawal, why not use that withdrawal to provide cash in C$ or US$ to meet our needs instead of possibly incurring capital gains in the taxable account? This is the point that some seem to have missed. (Assumes that we have a RRIF of sufficient size to provide the cash we need.)


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## AltaRed (Jun 8, 2009)

agent99 said:


> If we are going to pay tax regardless on our minimum RRIF withdrawal, why not use that withdrawal to provide cash in C$ or US$ to meet our needs instead of possibly incurring capital gains in the taxable account? This is the point that some seem to have missed. (Assumes that we have a RRIF of sufficient size to provide the cash we need.)


Isn't that what the wise do logically anyway? A similar principle is at work for those that accelerate drawdown of an RRSP (or RRIF) between retirement and age 65 in particular (70 at the extreme), except the motivation there is to: 1) minimize OAS clawback issues once OAS must start, and/or 2) to optimize taxation between the time of retirement and having to take annuity income.


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## GreatLaker (Mar 23, 2014)

agent99 said:


> If we are going to pay tax regardless on our minimum RRIF withdrawal, why not use that withdrawal to provide cash in C$ or US$ to meet our needs instead of possibly incurring capital gains in the taxable account? This is the point that some seem to have missed. (Assumes that we have a RRIF of sufficient size to provide the cash we need.)


Yup... got it. More flexibility to withdraw in the CAD/USD currency of choice.




AltaRed said:


> A similar principle is at work for those that accelerate drawdown of an RRSP (or RRIF) between retirement and age 65 in particular (70 at the extreme), except the motivation there is to: 1) minimize OAS clawback issues once OAS must start, and/or 2) to optimize taxation between the time of retirement and having to take annuity income.


This article takes an in-depth look at that, plus the dilemma of a surviving spouse inheriting a RRIF, and if they have their own investments or income, pushing income up into OAS clawback territory. The article is a few years old with tax rates from AB. The clawback thresholds are not current but I think the principles still apply.

Which Account Should I Draw First In Retirement?


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## agent99 (Sep 11, 2013)

AltaRed said:


> Isn't that what the wise do logically anyway?


 One would hope so. Only difference for us, is the realization that with US$ side now in RRIF, we can use the RRIF for US$ cash too.



AltaRed said:


> A similar principle is at work for those that accelerate drawdown of an RRSP (or RRIF) between retirement and age 65 in particular (70 at the extreme), except the motivation there is to: 1) minimize OAS clawback issues once OAS must start, and/or 2) to optimize taxation between the time of retirement and having to take annuity income.


We had no taxable income other than CPP/OAS after I 'retired' at 64. So we were able to draw down our RRSPs. But really it didn't help that much because we wanted to stay within a lower tax bracket. Growth in our RRSP holdings virtually matched the withdrawals. The reduction in the MWR helped with clawback threshold. Seems that no matter what we do, the RRIFs continue to grow. There will likely be a problem when one of us goes. Need to look for advice on that!



> by GreatLaker
> 
> Which Account Should I Draw First In Retirement?


I must have read something along those lines back when we retired. We more or less followed the recommendations. Now both well over 71 using income splitting to reduce taxes. Eventually one of us will be the survivor and be more heavily taxed. But maybe that won't matter that much then.


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## AltaRed (Jun 8, 2009)

agent99 said:


> One would hope so. Only difference for us, is the realization that with US$ side now in RRIF, we can use the RRIF for US$ cash too.


Okay, I think I now finally get why this could be suddenly exciting. I thought there have been USD sides to RRIFs for a long time. Depends on brokerage perhaps?


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## agent99 (Sep 11, 2013)

AltaRed said:


> Okay, I think I now finally get why this could be suddenly exciting. I thought there have been USD sides to RRIFs for a long time. Depends on brokerage perhaps?


They have been around for a while at BMOIL and no doubt also at other major brokerages. We never had a need, so never did ask for a US$ side in our RRIFs until recently. Hopefully this thread will be of some help to others in similar situation. Sorry Alta if you have been withdrawing US$ from your RRIFs for years and find this thread less than exciting 

I still don't own any US stocks or etfs in any of our accounts. We do now own several international ADRs and a couple of Canadian stocks that pay US$ divs on US side of our RRIFs.


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## AltaRed (Jun 8, 2009)

I am not RRIFing yet.... but it won't make any difference. My RRSP is less than 10% of my investable assets and it is fully in an "exciting" 5 year GIC/bond/debenture ladder. I get a "thrill" every ~6 months when it is time to renew one of my 10 holdings. Will stay that way until it exhausts itself me thinks.


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## agent99 (Sep 11, 2013)

AltaRed said:


> I am not RRIFing yet.... but it won't make any difference. My RRSP is less than 10% of my investable assets and it is fully in an "exciting" 5 year GIC/bond/debenture ladder. I get a "thrill" every ~6 months when it is time to renew one of my 10 holdings. Will stay that way until it exhausts itself me thinks.


True that thread may be of more interest if you are already into RRIFs and if RRIF is significant part of portfolio. In our case RRIFs are over 50% of our retirement savings. So perhaps more reason to use them as effectively as we can. I will probably be exhausted before the RRIF


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## RBull (Jan 20, 2013)

Put me down as someone using a similar method of registered withdrawals to generate USD, which represents about 40% of our annual spend from investable assets. In my case registered accts make up a significant portion of assets and a large part of these are in USD investments. We do not currently have USD investments in unregistered or TFSAs. 

Since retiring 4.5 yrs ago I have made withdrawals from my RRSP - a combination of US & CDN dollar cash which included gambits several times for the Canadian portion. Also recently converted much smaller LIRA to LIF (all CDN assets) and generate minimum withdrawals of CDN cash or in kind transfers. 

Simple process online for all with no fees at my discount broker.


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