Do you plan to meltdown your RRIF faster than the minimums to avoid a huge tax bill at death? | RRSPs and RRIFs | Discussion forum

1. As a general rule, do not draw down RRIF balances prematurely for estate tax reasons. One never knows if higher amounts may be needed late in life nor when one will actually go out boots first.
2. Once surviving spouse dies, if one has one, it doesn't matter what the estate tax bill is. Beneficiaries will get what they get and should be happy to get anything.
3. Estate tax bill can be reduced or eliminated with bequests to charitable organizations.
4. If one knows they have significant RRIF excess, then yes, withdraw early and gift while alive, to family or charitable organizations or both.

I don't believe there is a "one size fits all" answer. I do believe that the majority of people would be better off with extra withdrawals, but can't prove it. You really have to do some detailed math projections to analyze your personal situation.

Here are some factors to consider:

What is the maximum tax bracket you will ever be in without extra withdrawals? You will likely do best to stay within or below it.

How does "the time value of money" compare to what you might owe CRA for larger withdrawals? Within that calculation, consider decrease of Age Amount, OAS clawback, income-dependent benefits or eligibilities, if these apply to you.

If you are a GIC investor for your RIF, note that interest rates are often lower for RIFs than non-registered and many FIs with superior rates don't offer RIFs, so returns may be lower.

What difference does it make to you, as a living individual, if your RIF stash gets heavily taxed when you die? Would you make use of it if you had access to it during your lifetime, knowing the net amount you would have is less than what it says on your statement?

A million will be harder to "use up" in withdrawals than a smaller amount. The withdrawal system only works well if there is reasonable chance that you will live on after you're done with it.

I turn 77 this year and will be closing out my last RIF from a calculated withdrawal system over several years. I couldn't be happier. Not having to worry any more about where to invest the darn things or the nuisance factors around mandatory and optional withdrawals are clutter that I really don't need in my life at this stage, and I really dislike looking at statements for inaccessible useless money, of which some unknown portion isn't really mine. You may feel differently.

Why do people make life so hard for themselves?

My two steps plan:

1. Cash/1yr GICs only in my RRSP/RRIF.
2. As long I don't need additional money, I'll stay with mandatory minimum RRIF withdrawal rates - this will be done automatically by banks I have RRIF with.

I used to withdraw more from my RRIF but reducing the future tax rate & amount wallop on death was the least of my reasons. Back when ISA's within my RRIF were paying almost nothing, I wanted to get tax paid money free to place wherever I wanted and earning a much higher % after tax income. I would take into account OAS clawback in estimating the excess.

However now with ISA's paying decent rates and income increasing because of interest rate increases, I've stopped and only withdraw the required minimum.

"Do you plan to meltdown your RRIF faster than the minimums to avoid a huge tax bill at death?"

No. Not an issue for us. Upon demise of survivor, it all goes to charity anyways.

In my case, MTR difference between accelerating draw down vs lump sum estate taxes upon death is not a material factor, so I will stay with minimum annual withdrawals. Tax deferment has more time value than estate taxes the last surviving spouse will no longer care about.

It helps I will only have one holding in my RRIF (at a discount brokerage) shortly and thus will only have to look at it once a year, i.e. minimal oversight required. It could be quite different if one had multiple holdings, GIC ladders, etc.

dommm said
A little off topic but I did a transfer from an RRIF to an RRSP. I was under the understanding that transfering between registered accounts would not cause a taxable event but I received a T4RIF that shows an amount in Box 16 (Taxable Amounts). Was I wrong or are they wrong? Thanks  

Assuming you received a payout from your RIF into non-registered, then, yes, you should expect a T slip for it. No money ever escapes the RSP-RIF camp without being taxabble.

Perhaps the real question is whether they should have taken the mandatory amount out before transferreing back to RSP. Generally speaking, they are required by law to pay out mandatory amount before transfer, i.e. transfer to another FI, but I'm not sure if RSP transfer is exempt. Probably too late now to change it though.

savemoresaveoften said
what if one is already at a high income bracket (140k+) and that 100% OAS clawback already triggered. Is there still benefit to withdraw from RRSP / RRIF at a more aggregsive fashion to try to lower tax in the future years /at end ? Or its simply more advantageous to turn it into an annuity for the longevity protection.

To keep withholding tax at 10% not meaningful under that scenario either.  

There are additional factors that come into play for the higher income person.

If you postpone OAS to age 70 and take CPP early, you may be able to stretch your OAS clawback enough to actually receive some of it, but not much. It is ridiculous that someone pulling in 140K would get any OAS, but, then, in my view, the OAS system is ridiculous anyway.

Remember too that at age 75 the OAS increases, so this may also allow you to stretch out OAS availability.
If you can arrange your income so that it isn't always high, then you may still get some OAS with careful planning. Some can; some can't.

The advantage of annuity is not just about longevity risk, although that's its primary purpose. Bear
in mind that required withdrawal percentages rise more sharply as you age. This may not matter as principal is smaller, but you need to do the calculations. Annuities help to stabilize the annual income amount.

Some people have found it helpful to fold up their RIFs fairly quickly, in one to three years or so. They take the big hit, of course, but in some cases this brings them down to a lower marginal rate for everything else for all remaining years, so is worth it to them.

So much depends on individual circumstances and comfort levels.

Thanks, AltaRed.