# RRSP vs. RRIF



## janus10 (Nov 7, 2013)

OldPro said:


> Janus, I'm a bit confused. Why are you taking $36k out of your RSPs?
> 
> What I am reading from that is that you do not have an income stream to cover your costs. Instead you are eating capital to live on. Am I missing something?


It's pretty simple. I will have income streams in our RRSPS and non-reg. But, it is more tax efficient for us to tap our RRSPS first. They will be sizeable and even with early retirement we will have a few years of RRIF withdrawals which will exceed our spending requirements. We will plow the extra income into our TFSAS.

In fact, I need to adjust my calculator to see how beneficial it would be to take extra out of the RRSPs and max fund our TFSAS during retirement to reduce or even eliminate forced RRIF withdrawals.


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## My Own Advisor (Sep 24, 2012)

Interesting but good dilemma Janus.

So to clarify, you're withdrawing from tax-deferred accounts (RRSP + RRIF) before taxable (non-reg), then before TFSAs?

Not that we're close to retirement but this seems to make sense to me; saving TFSA withdrawals last and ensuring those accounts (TFSAs) and maxed out where possible with leftover monies from RRSPs and RRIFs.


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## gibor365 (Apr 1, 2011)

> But, it is more tax efficient for us to tap our RRSPS first. They will be sizeable and even with early retirement we will have a few years of RRIF withdrawals which will exceed our spending requirements


 But you don't have convert all RRSPs into RRIFs, you may convert one and leave another one....
The biggest advantage if both spouses don't retire exactly same time... as retired spouse can convert RRSP to RRIF, and still working continue contribute from 1st RRIF proceeds to his/her personal or spousal RRSP....


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## janus10 (Nov 7, 2013)

gibor said:


> But you don't have convert all RRSPs into RRIFs, you may convert one and leave another one....
> The biggest advantage if both spouses don't retire exactly same time... as retired spouse can convert RRSP to RRIF, and still working continue contribute from 1st RRIF proceeds to his/her personal or spousal RRSP....


We will have no choice by the time we reach 71 (unless we want to take it all out at once and suffer a huge tax hit). I'm not sure why one would convert an RRSP to RRIF early as you can still take money out of an RRSP - but there aren't any minimum withdrawals like with a RRIF (regardless of how small the percentages are before 71). So, our plan is not to convert our RRSPs to RRIFs until the last moment. 

And, to answer MOA, yes, we will take money out of the tax-deferred accounts first simply because, in the long term projections, it is the best for us to achieve the highest net income. I think Daryl Diamond also espouses this idea, noting that it is contrary to popular thinking.

If my wife retired before me, then I could cover our expenses base on my income. If I retired first, then we would need to get some additional income from our investments.


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## gibor365 (Apr 1, 2011)

> I'm not sure why one would convert an RRSP to RRIF early as you can still take money out of an RRSP - but there aren't any minimum withdrawals like with a RRIF


 because you will pay from 10 to 30% RRSP withholding tax ... RRIF doesn't have any.... if you want to support CRA, you may withdraw from RRSP


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## RBull (Jan 20, 2013)

janus10, we will be following a similar plan. We are in first year of retirement.

Gibor withholding tax is a fact of life with an RRSP withdrawal. If you are concerned with excess payments, withdrawals can be made late in the year with a refund issued at tax time, which you can simply factor in and use as income or as needed.

RRIF does not have withholding tax at source IF you withdraw the minimum amount. Amounts higher are subject to the same withholding rates as RRSP's. IMHO, establishing an early RRIF provides less flexibility once in place since you have set minimums to withdraw annually so for the early retiree may not as good a choice, especially when other sources of income/capital are involved. I will likely wait until age 71.


I was in the middle of editing my post when you posted so not sure if this helps or not.


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## gibor365 (Apr 1, 2011)

> Gibor withholding tax is a fact of life with an RRSP.


 this why I'm telling to convert it into RRIF and if RRIF minimum amount will be too high , just contribute in into another RRSP..

Our plan is different.... I'm older and will retire earlier than my spouse, I will convert my RRSP into RRIF and will contribute to my spousal RRSP to reduce max taxes of my spouse... thus I practically won't pay taxes at all....


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## RBull (Jan 20, 2013)

I do not follow why the OP or me for for example would want to start a RRIF and then contribute these minimum withdrawals into another RRSP, when there are other income sources at play, or for that matter even if there weren't.


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## gibor365 (Apr 1, 2011)

in order to redeem RRIF minimum with no taxes and contribute to SRRSP to avoid paying the highest margin taxes....
For example, if my RRIF minimum will be 5K per year, I won't be paying any taxes on it, and if my spouse contributes it to SRRSP, refund she gets will be roughly $2,400 higher


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## RBull (Jan 20, 2013)

Gibor, if you pay no taxes with only an RRIF minimum withdrawal you will pay no taxes with only an RRSP withdrawal. As I stated before the only difference is you will pay tax at source with the RRSP and wait until tax time to get your refund. Besides the tax at source for a $5K withdrawal is 10% = only $500. The timing of using an RRSP withdrawal might be as convenient for a quick refund but from what you've explained it doesn't matter which method is used. Your wife will still get the same refund, not one $2400 higher. RRIF minimum withdrawals aren't tax exempt; just don't don't withhold tax at source. You still have to claim it at tax time. 

I understand now why you're doing this but it's not something I would do due to not wanting to lose complete flexibility with my RRSP especially since lots can change in this period of life.


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## gibor365 (Apr 1, 2011)

> tax at source for a $5K withdrawal is 10% = only $500


 OK, but this is my point... if I convert RRSP to RRIF, I don't have to pay this $500.... and if something chages, I always can open new RRSP (until I'm 71).
My point is to try to withdraw tax sheltered money most efficiently (with min tax pay)


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## RBull (Jan 20, 2013)

gibor said:


> OK, but this is my point... if I convert RRSP to RRIF, I don't have to pay this $500.... and if something chages, I always can open new RRSP (until I'm 71).
> My point is to try to withdraw tax sheltered money most efficiently (with min tax pay)


You gain $500....temporarily. If you have no other income you will receive a refund of $500 at tax time. You're setting up a RRIF and having forced withdrawals to gain use of $500 for a few months. You can only contribute to another RRSP if you have employment income. 

Maybe I'm missing something here but I fail to understand why this is really of benefit and why you suggested it to the OP.


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## Davis (Nov 11, 2014)

Is it possible that gibor is missing the connection between tax withheld and tax liability?


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## RBull (Jan 20, 2013)

^it seems that might be possible, but I thought my post #130 was clear on that.


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## janus10 (Nov 7, 2013)

gibor said:


> OK, but this is my point... if I convert RRSP to RRIF, I don't have to pay this $500.... and if something chages, I always can open new RRSP (until I'm 71).
> My point is to try to withdraw tax sheltered money most efficiently (with min tax pay)


I know what you are saying, but an extreme solution is to have separate RRSPs set up in different institutions if they get too large. That way each institution can impose their withholding tax, but if I have, let's say 3 institutionally separated RRSPs each with $200k and my wife has the same , then we can take $5k x 3 x 2 out and we would only be subject to 10% withholding tax. When we file our taxes (assuming no other income), we would each get refunds of $828. However, I could set up separate RRSPs for each of us, transfer half of our holdings in kind and convert one of each into RRIFs. I'm not sure how many institutions will start charging some administration fee if you get below $100k. I'm still unconvinced that this idea is a good one.

I looked at what would happen if my wife and I had just our two separate RRSPs. Even with setting each up as RRIFs early, the minimum withdrawals would exceed our expenses very soon. And, I don't understand how I can contribute to a brand new RRSP in retirement - what contribution room will I have since we will exhaust it as a prelude to retiring?

However, I do think your statements belie some misunderstanding about, as Davis states, the difference between withholding tax and tax liability. RRIF's are not a more tax efficient vehicle to withdraw money and in fact, you give up some control such that it could actually be worse.

Now, an RRSP Meltdown strategy could be a way to be even more tax efficient if one is ok with leverage. Basically, you take out an investment loan to buy equities which meet the CRA criteria for allowing interest deduction. You then withdraw from your RRSP an amount to service the interest costs on the investment loan. I would say it is somewhat like evolving your RRSP into a non-reg account. I've run some calculations and there are really so many unknowns over a 20+ year period that, at least at this point, I'm not considering this strategy.


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## janus10 (Nov 7, 2013)

gibor said:


> this why I'm telling to convert it into RRIF and if RRIF minimum amount will be too high , just contribute in into another RRSP..
> 
> Our plan is different.... I'm older and will retire earlier than my spouse, I will convert my RRSP into RRIF and will contribute to my spousal RRSP to reduce max taxes of my spouse... thus I practically won't pay taxes at all....


Will you be be using your wife's younger age to base the withdrawal amounts?

And I apologize if this tangent took us off topic.


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## gibor365 (Apr 1, 2011)

> You can only contribute to another RRSP if you have employment income.


 Not true! You may have contribution room if you didn't use all for previous years.



> Will you be be using your wife's younger age to base the withdrawal amounts?


 Depends on calculations I do before converting...and it's possible...
Let me explain with numbers.... Assuming I have $200,000 RRSP and $200,000 SRRSP (my spouse is a contributor) and convert 1st RRSP to RRIF. My minimum withdrawal will be around $5,000 I I have 0 tax on it.... My spouse is still working and she will be in the highest possible tax bracket (around 50%). So , she contributes $5,000 into my Spousal RRSP and gets bigger refund . Practically I transfer $ from my individual RRSP to my spousal RRSP and I end up with $195,000 in RRSP and $205,000 in SRRSP and my spouse got much bigger refund.
It also flexible as my spouse may contribute not 5K , but 3K .... and other 2K we spend on some trip (and I again I' wouldn't be taxed on it, and wouldn't be paying 10% RRSP withholding tax). RRIF doesn't have maximum payment , so I can withdraw more than minimum and still not to pay taxes (as income will be below the threshold)..... but actually I'm not planning to sell stocks from RRIF, just stop most of DRIPs, and dividend amount will be exactly covering withdraw minimum...
RBull, just to be clear .... do you mean that if I withdraw same $5000 from RRSP , this amount can be contributed into SRRSP same way? The only difference will be that I will be taxed $500 at RRSP withdrawal and will get back this $500 after filling up taxes?
btw, I've read some time ago that if you withdraw from RRSP $5,000 several times, you can be charged not 10% , but accumulated % on all withdrawals...


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## gibor365 (Apr 1, 2011)

OK, I didn't take in consideration that RRSP withholding tax is refundable and was assuming it's kinda penalty.... In this case that major drawback RRSP withdrawals that you pay taxes diuring the year (when withdraw) and get it back in best case 3-4 months later... also I'm not sure that if you withdraw 5K 3 times in December, you will be taxed only 10% and not accumulative...
Disadvantage of RRIF that you MUST withdraw minimum, even though if I setup RRIF per my spouge age, mandatory withdrawals will be almost twice less


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## jambo411 (Apr 6, 2009)

One advantage of the RRIF is you don't get nailed with the $50 plus GST that each RRSP withdrawal will cost. I pulled my first $5000 out of my RRSP earlier this month to fund my TFSA and got stung at Scotia iTrade.


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## rikk (May 28, 2012)

^ Not that it's much consolation ... but thanks for posting ... I wasn't considering withdrawing for a while but looked it up and yep, it's a $50 fee for RSP "partial deregistration" at QTrade as well. Whereas scheduled RIF withdrawals, no fee. So it'll be convert to RIF for me.


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## Rebecca (Aug 10, 2014)

And another reason to convert an RRSP to a RRIF would be to split pension income, right? We are planning to do this in a few years when my spouse is 65.


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## gibor365 (Apr 1, 2011)

jambo411 said:


> One advantage of the RRIF is you don't get nailed with the $50 plus GST that each RRSP withdrawal will cost. I pulled my first $5000 out of my RRSP earlier this month to fund my TFSA and got stung at Scotia iTrade.


True! CIBC IE Full Plan Withdrawal $100, partial $50


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## Dufresne (Mar 4, 2015)

gibor said:


> because you will pay from 10 to 30% RRSP withholding tax ... RRIF doesn't have any.... if you want to support CRA, you may withdraw from RRSP


If you are drawing more than the minimum formula in any given year, that excess over the min is subject to withholding taxes. That said, some elect to have some % of the taxes withheld at source to avoid triggering quarterly tax (eg prepaid) installments.


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## Dufresne (Mar 4, 2015)

And another reason to convert an RRSP to a RRIF would be to *split pension income, right*? We are planning to do this in a few years when my spouse is 65.


That's a great opportunity right there. Another is the DB and DC pension income, and CPP retirement pension.


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## gaspr (Mar 24, 2014)

If you qualify for the "Royal Circle Membership" at RBC Direct Investing (250k balance for four consecutive months) you get free partial RSP withdrawals...at least for now...


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## RBull (Jan 20, 2013)

^Yes


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## avrex (Nov 14, 2010)

What is the administration fee for a TDDI Self Directed RRSP withdrawal? 

According to this link it is the Partial Withdrawal Fee is *$25*. (For example, on a $5000 withdrawal.)

This link is from 2013, so I'm not sure if it would be different today.
Although the TD fee looks lower than some others, it still makes me wonder......

Would TD waive the $25 fee if one threatened to move their business to RBC?

Although if they actually went through with it, they'd probably have to pay a one-time, full-withdrawal fee of $125.


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## gibor365 (Apr 1, 2011)

> Although if they actually went through with it, they'd probably have to pay a one-time, full-withdrawal fee of $125.


 any other major brokerage will reimburse this fee + give you some cash (I got $300 in CIBC IE) + some free trades....

Probably you will be able to negotiate to waive RRSP withdrawal fees , but you will need to to it every time... imho opinion it's more simple to convert to RRIF


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## Retired Peasant (Apr 22, 2013)

Something else to remember - you don't have to convert 100% of a RSP to a RIF (prior to age 71 of course). You can just transfer a small amount into the RIF to keep the minimum withdrawal to a level you want, and withdrawing from the RIF avoids a fee (this is at TDDI)


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## janus10 (Nov 7, 2013)

jambo411 said:


> One advantage of the RRIF is you don't get nailed with the $50 plus GST that each RRSP withdrawal will cost. I pulled my first $5000 out of my RRSP earlier this month to fund my TFSA and got stung at Scotia iTrade.


Ok, now THAT is something I didn't know. That does provide an additional issue to consider. Better to take out one amount for the year. Maybe creating a secondary RRSP per spouse makes more sense (so as not to take out more than I need and end up paying more taxes than necessary).


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## janus10 (Nov 7, 2013)

Rebecca said:


> And another reason to convert an RRSP to a RRIF would be to split pension income, right? We are planning to do this in a few years when my spouse is 65.


To make use of the pension-splitting rules the pension recipient must receive “eligible” pension income. To figure out what is eligible pension income it’s easiest first to see what represents ineligible pension income for purposes of pension splitting:

Old Age Security (OAS) payments

Canada or Quebec Pension Plan (CPP/QPP) (other rules apply for sharing these types of income)

Non-annuity registered retirement savings plan (RRSP) withdrawals

Withdrawals from a retirement compensation agreement (RCA)

When the actual pension recipient is age 65 or over at the end of a year, the pension income eligible for splitting includes the following:

Annuity payments from a registered pension plan (RPP)

Annuity payments from a deferred profit sharing plan (DPSP)

Registered retirement income fund (RRIF) and life income fund (LIF) withdrawals.

When the actual pension recipient is under 65 at the end of a year, the pension income eligible for splitting includes the following:

Annuity payments from a registered pension plan (RPP)

Amounts listed above for the 65 or over crowd if received by virtue of the death of a spouse/common-law partner.


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## janus10 (Nov 7, 2013)

Retired Peasant said:


> Something else to remember - you don't have to convert 100% of a RSP to a RIF (prior to age 71 of course). You can just transfer a small amount into the RIF to keep the minimum withdrawal to a level you want, and withdrawing from the RIF avoids a fee (this is at TDDI)


Thanks for pointing that out, too. Didn't know that you could simply assign a portion to a RRIF.

Now, I'm definitely leaning towards using a RRIF early. Thanks gibor for pushing this issue and facilitating a reevaluation of RRSPs vs. RRIF. :encouragement:


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## gibor365 (Apr 1, 2011)

janus10 said:


> Thanks for pointing that out, too. Didn't know that you could simply assign a portion to a RRIF.
> 
> Now, I'm definitely leaning towards using a RRIF early. Thanks gibor for pushing this issue and facilitating a reevaluation of RRSPs vs. RRIF. :encouragement:


No problem  More we discuss, better for everyone to make a decision.
I don't think you can have problem with splitting RRSP (and converting one part to RRIF). You may open another RRSP in the same (or different institutuosn) and transfer portion of your original RRSP.
P.S. Now I'm curious how we can unlock LIRAs as early as possible and opened new thread


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## livewell (Dec 1, 2013)

Since at TDDI RRSP withdrawals cost $25 and RRIF withdrawals are free (Though I have heard they will waive RRSP withdrawal fees on occasion) I am considering the feasibility of creating a small ~$20k RRIF from my RRSP each year, and then withdrawing 100% of the RRIF. Does anyone know if you can create a RRIF and partially transfer from RRSP to the same RIF account or if you need to create a new RIF every time? A bit of a pain to open new account each year, but if TD will otherwise charge $25.


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## Retired Peasant (Apr 22, 2013)

You don't create a new RIF every time. You just have one RIF account. However, keep in mind that a RIF with <$25000 in it will be charged an annual admin fee. I have $25000 in a GIC ladder in the RIF; I then transfer from the RSP to the RIF, the amount I want to withdraw, maintaining the minimum balance in the RIF to avoid fees. Even if you have the minimum portfolio balance across all accounts that would waive fees, this one isn't waived. I suppose you could ask to have it waived, but they could always say no.

The minimum RIF withdrawal on that $25000 is well below the amount I want to withdraw, so it all works out.


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