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Email this6:51 am
February 22, 2013
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Rick/Loonie:
I have an RSP larger than $10,000. In February of the year I turned 65 I opened a RIF account with a zero dollar balance. December 15th of that year I sold $2000 worth of RSP investments to turn it into cash. December 17th I transferred the $2000 from the RSP to the RIF. December 19th I transferred the $2000 from the RIF to my Trading Account where it was reinvested. The $2000 landed in the Trading Account as $1800 as $200 was withheld at source to pay the income tax on the withdrawal.
Each year I do this again till I reach 71 when the entire RSP will be transferred to the RIF.
Mandatory withdrawal amounts are calculated by the December 31/January 1 balance in the RIF and as mine is ZERO at that time I have no additional mandatory withdrawal requirements.
GS
8:32 am
December 23, 2011
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Hi GS. Why do you flow the 2000 through your RIF? Why would you not just do a 2000 withdrawal from your RRSP to your bank account or trading account.
Peter
9:48 am
February 17, 2013
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July 31, 2013
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Kanaka, the $360 in annual income tax savings is the reason why the $2,000 is taken from his RRIF and not his RRSP. The transfer he is talking about is a conversion of an RRSP to a RRIF.
The federal tax savings is $300 or 15% of the $2,000 which is the maximum pension income tax credit eligible only for those 65 years and older.
The additional $60 in annual income tax savings is for Ontario taxpayers but for other provinces the annual income tax savings could be less or more depending on the income tax rates for the province that you reside in, Kanaka.
Thanks, from SD2013.
10:28 am
October 21, 2013
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Very helpful, SD. I think I may do exactly what you have said. Fascinating that the monthly payout would be more advantageous - I would never have expected that, as the info I had seen from other institutions suggested the opposite.
Rick, I don't think CPP does in fact qualify as pension income for this purpose. You could check with CRA, but I believe I did look into that and was surprised that it didn't count.
I am not optimistic that I would do any better with laddering for such a small amount of money. If it were bigger, it might be worth my while as I could think in terms of several 5 or 6 yr chunks, but I will never get that opportunity with such a small amount of money. If you have a few hundred thousand, it is probably worthwhile.
I suppose you could just take 2000 out of the rrsp, but there is a reason I have not done this. I just can't remember what it is at the moment!
11:14 am
July 31, 2013
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Loonie, the main reason why the monthly RRIF GIC payments are a better financial option is because Oaken Financial only reduces their 5 year RRIF GIC rates by 5 basis points compared to their annual 5 year RRIF GIC rate.
Their 5 year RIF GIC rate is currently 3.05% compared to their monthly RRIF GIC rate which is currently 3.00%.
Most other financial institutions reduce their monthly RRIF GIC rates by 25 to 33 basis points but I have seen some as high as 50 basis points.
This means a 2.40% to 2.65% maximum 5 year RRIF GIC rate for most other financial institutions. Some other financial institutions do not even offer them at all.
Loonie, if you could get the annual RRIF GIC payment at the end of the year, it would be even better than the monthly RRIF GIC payments option. See if they can do that.
You are right, Loonie, C.P.P., OAS, GIS and any other public pension, benefit that is not a federal pension that came from working for the federal government is not eligible for the $2,000 annual pension income amount and tax credit of 15% federal, $1,200, 5.05% for Ontario but other provinces vary.
I know that RRIF income, federal, provincial, municipal pensions, foreign pensions, company pensions, annuity income all qualify for this pension income amount and tax credit. You must be 65 years old in order to qualify for this.
Glad I could help, Loonie.
Thanks, from SD2013.
2:28 pm
October 21, 2013
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Another consideration just occurred to me, based on the Oaken scenario.
With CDIC-insured institutions such as this, I can only get a maximum 5yr GIC. This will leave me with some money still in the RIF after 5 years. As it will only be a few thousand, it will be difficult to invest it at highest rates, even if it is just for a couple of years.
So, that has got me thinking about the Manitoba Credit Unions and their ilk, which sometimes offer 7 years. This would clean out the account nicely if I could get suitable rates and withdrawal system.
I know I could research this myself, but there are a lot of them, so, if anyone happens to know if any of these institutions are friendly towards what I am proposing, I would be interested in hearing.
2:45 pm
October 21, 2013
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Looks like Accelerate is still offering 3.10 on 7 years, with a full slate of withdrawal options.
Maybe this is what I should be looking at?6
5:21 pm
July 31, 2013
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Loonie, Caisse Financial Group is a Manitoba Credit Union and has I believe has almost 30 branches and is 75 years old.
They have a 3.25% 62 month RRIF GIC that pays annual RRIF GIC payments. They also have a 3.20% 7 year RRIF GIC that pays annual RRIF GIC payments.
Loonie, keep in mind, Caisse Financial Group is not CDIC insured, protected, guaranteed but all their deposits are 100%, fully guaranteed with unlimited principal and interest included and no term limit guaranteed by DGCM, Deposit Guarantee Corporation of Manitoba which is not backed by the government of Manitoba.
This is a non government corporation that collects money from all Manitoba credit unions by law and uses this growing deposit guarantee fund to make sure that if any Manitoba credit union fails, they have money to back it up.
Also, by Manitoba legislation, all Manitoba credit unions must have a minimal amount of capital set aside and liquidity in case such Manitoba credit union failure or failures occur.
You can get all the information you need, Loonie at http://www.depositguarantee.mb.ca.
Glad to give some assistance, Loonie.
Thanks, from SD2013.
6:05 pm
October 21, 2013
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That's a great rate for the 7 yrs I am looking for, but it appears one must be a MB resident to join this particular CU. "Residents and businesses of Manitoba are welcome to complete an application for single or joint Caisse membership. Applications may be obtained at any center of the Caisse Financial Group." Perhaps someone else will be able to take advantage of it though.
Thanks.
6:07 pm
October 21, 2013
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I am OK with using the MB Deposit Corp instead of CDIC for this one. It's not a huge amount of money in the scheme of things, and I am told that no CU has ever gone belly up in MB.
6:31 pm
July 31, 2013
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Loonie, I agree with you. I'm sure they have strict capital and liquidity requirements. This is just like with Canadian life insurance companies.
It is a rare thing if it ever happens and they would likely have a big deposit guarantee fund like Assuris or DGCM to protect GIC depositors and other depositors.
They would also have another financially stronger, stable Manitoba credit Union buy or take over the failed Manitoba credit union as well.
It looks like Accelerate Financial at 3.10% for 7 years is the best RRSP GIC rate that is available to you, Loonie.
Thanks, from SD2013.
8:01 pm
October 21, 2013
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Thanks for the confirmation, SD. I think I've finally made up my mind!
I hope someone else finds this discussion useful as well.
7:43 am
July 31, 2013
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Thank you Loonie for the appreciation and I am glad that I could help you with this very important issue.
The only other way I know to get a higher guaranteed, fixed interest rate than 3.10% is to invest in a 10 year RRIF 3.225% and 15 year RRIF 3.525% with Equitable Life of Canada.
Their RRIF payments are all annual payments and all these 10 and 15 year guaranteed, RRIF rates that I mentioned in this post are annual guaranteed RRIF rates which are effective from January-31-2014 and are still valid today, February-4-2014.
If they do offer monthly RRIF payments, they are reduced by 25 basis points on all their annual RRIF rates, (3.525%-0.25%-3.275% for monthly guaranteed, RRIF payments for a 15 year RRIF with Equitable Life of Canada).
It is not worth it in my opinion because their 15 year guaranteed, RRIF rate will be reduced to 3.275% which is higher than the 3.00% 5 year RRIF GIC by Oaken Financial that pays monthly RRIF GIC payments but you must lock in your money for an extra 10 years.
The minimum investment is $50,000 for these higher 10 and 15 year guaranteed, annual RRIF rates but for investment amounts of minimum $500 up to $49,999.99 are lower at 3.10% and 3.40% for 10 and 15 year guaranteed, annual RRIF rates.
Loonie and anyone else can see it for themselves at http://www.equitablelife.ca.
This may be a good financial move, if a senior or retiree does not need or does not want to deplete, collapse or meltdown their RRIF in 5 to 7 years.
Many reasons why they might consider a 15 year, 3.525%, guaranteed RRIF with Equitable Life that pays guaranteed, annual RRIF payments are listed below.
This type of senior or retiree needs a safe, guaranteed, reliable, steady income stream for many years, 15, 20, 30 years plus.
Also, their RRIF is one of their biggest financial resources maybe $200,000 or $300,000 so they need it to last for their entire retirement.
They want to make the most of their RRIF and their guaranteed, annual RRIF payments without having to deal with any market volatility, price fluctuations or any capital losses.
They want financial peace of mind and are not trying to make a much bigger annual return of say 7%, 8%, 9%, 10% etc. from their RRIF.
I hope this information and my posts are useful and helpful for someone.
Thanks, from SD2013.
2:20 pm
October 21, 2013
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Those are good options for someone with a longer time horizon, SD.
I was just informed by a staff member at Accelerate that if you move your RIF from one institution to another, the first one is obliged to withdraw your minimum payout for that year before sending it on. Something to consider when calculating your decisions.
2:49 pm
July 31, 2013
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Loonie, don't tell me you already converted your RRSP to a RRIF. It would of been better to transfer your RRSP left in a variable account from one financial institution to the other financial institution as an RRSP.
Once you transferred your RRSP to Accelerate Financial then you would convert it to a 3.10%, 7 year RRIF GIC and take the CRA annual mandatory minimum RRIF GIC payment or a higher amount of your choice like the $2,000 annually you spoke about.
This way, you would not have to take the CRA annual mandatory minimum RRIF GIC payment from your original financial institution and then transfer it as a RRIF to Accelerate Financial.
This would avoid this whole problem in the first place.
Thanks, from SD2013.
5:12 pm
October 21, 2013
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I'll remember that for the next one that I convert.
I was up against a time crunch in December, as I wanted to get the $2000 withdrawn for 2013 tax year.
Other problems sprang up in my life so that I didn't have time to figure out anything further and didn't realize I would run into this issue.
For this reason, I think my best option now is to take out the 2000 from my existing RIF for 2014, and then move the rest into what will now be a 6-yr GIC, as there won't be enough money for a 7-yr one. I figure I might as well do it now and get it over with, as the money is currently earning .05%, and anything would be better than that!
So I'm now looking for a 6-yr RIF. This may still be at Accelerate, at 3.05
Looking on the brighter side, transferring the RRSP would have cost me, I think, $50, maybe $100, but transferring the Rif is free. That was the reason I thought it would be OK to do it this way, not realizing there was this mandatory up-front withdrawal issue. If I'd done all this in Dec., I'd be better off, but, as I say, I ran out of time due to crisis.
My mandatory is only just over $400, so I suppose I could just have them take out that bit, and then transfer all the rest to the new institution into a savings account RIF, and then put (2000-400) = 1600 in a daily interest portion at the new institution until I take it out in December, but I am not sure that makes enough sense at 1.9% or so, although it's sheltered. I am wondering if it would be better to withdraw the whole 2000 and put it, along with some other money, in a new unsheltered investment now, or whether I should leave the 1600 in the sheltered spot at 1.9 . My tax rate is quite low right now, so I think I'm better off to move it all out now.
If I just take out the 400, no more, I won't get my full pension credit from CRA, which was the reason for doing this whole thing in the first place.
I can't believe how complicated this decision has become! I have spent hours trying to figure this out, and it's not a huge amount of money!
Any thoughts?
1:22 am
July 31, 2013
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Loonie, since you said you are in a low tax rate right now in 2014, a forced mandatory minimum RRIF payment of $400 will not add that much more in income taxes maybe an extra $80 to $100 for 2014.
Loonie, you can do a 6 year RRIF GIC from Accelerate Financial at 3.05% when you transfer it to Accelerate Financial so you can start getting your $2,000 annual RRIF GIC payment and take advantage of the pension income amount and federal 15% tax credit and provincial as well.
Loonie, the problem is that you will still have left $1,740.79 remaining in your RRIF when your 6 year RRIF GIC at Accelerate Financial matures in 2020.
Believe it or not, it still makes financial and income tax sense to invest in a 3.10%, 7 year RRIF GIC at Accelerate Financial.
The only difference is, you can't receive $2,000 annually from your 7 year RRIF GIC but you can receive $1,968 annually annual from your RRIF GIC.
Loonie, if you buy a 3.10%, 7 year RRIF GIC at Accelerate Financial, make sure your choice of receiving an annual RRIF GIC payment of $1,968 is in writing when you fill out their RRIF GIC application, contract.
This is very important because once you choose how much of an annual RRIF GIC payment you need then you can't change it for 7 years and if you try to cash in or redeem early, you will lose interest that could be in the hundreds to the thousands of dollars.
Loonie, receiving $1,968 versus $2,000 is really not much of a difference in annual tax savings lost, maybe $10 a year at most so it is almost what you wanted in the first place to maximize the most of getting the tax savings of the $2,000 annual pension income amount, federal, provincial income tax credits.
Loonie, your best option is still a $12,600, 3.10%, 7 year RRIF GIC with Accelerate Financial and receiving an annual RRIF GIC payment of $1,968 which will deplete your RRIF GIC to $0.00 by the time the 7 years go by and your RRIF GIC matures in 2021.
I hope this information and my posts are useful and helpful for you Loonie and anyone else with a similar position or situation.
Thanks, from SD2013.
2:34 am
July 31, 2013
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Loonie, I just went to http://www.fiscalagents.com used their RRIF withdrawal Schedule Generator which calculates the mandatory minimum RRIF payment or RRIF withdrawal for 2014 and it is $500.00 or $500.26.
I don't remember if you are 64 or 65 but either age your $13,000 RRIF at the financial institution that you already converted it to a RRIF is saying $400 or is that you thought.
The reason I am mentioning this is because this will impact your annual mandatory minimum RRIF GIC payments that you must request at Accelerate Financial.
I used a $12,600 RRIF GIC amount but if you are forced to take out $500 instead of $400 for your annual minimum RRIF payment at this current financial institution then this changes everything.
The mandatory minimum RRIF GIC payment that you must get in writing when you sign and fill out your RRIF GIC application, contract at Accelerate Financial is not $1,968 but $1,953 if your RRIF balance is $12,500 instead of $12,600.
This will deplete your $12,500, 3.10%, 7 year RRIF GIC at Accelerate Financial to $0.00 when it matures in 2021.
If all this sounds complicated and you are not sure what to do, when you transfer your RRIF to Accelerate Financial, your best option is still invest your RRIF into a RRIF GIC for 7 years at 3.10% at either $12,600 or $12,500, whatever the RRIF balance is at Accelerate Financial.
If you want to cautious or careful about what annual mandatory minimum RRIF GIC payment you must choose when setting up your 7 year RRIF GIC, just go with the lower annual RRIF GIC payment of $1,953 instead of $1,968.
The worse that can happen if you choose the lower $1,953 annual RRIF GIC payment is you are left with $126.55 in your Accelerate Financial RRIF GIC at the end its maturity date in 2021 and you withdraw that full amount as a final RRIF payment depleting your account having a $0.00 RRIF balance.
I hope this additional information and post is useful and helpful for you Loonie and anyone else.
Thanks, from SD2013.
9:29 am
October 21, 2013
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Thanks for working this through, SD.
My specifics are a little different. One has the option of basing minimum withdrawal on age of spouse. In my case, the spouse is younger, hence the lower mandatory withdrawal, although it is a bit higher than I had first speculated.
After the current bank takes out the 2000 for 2014, there will be about 11,300 remaining. I will see if Accelerate is willing to still give me the 7 year rate, with that in mind., as there wouldn't be enough for 2000 x 7, but there would be more than 2000 x 6. If I have to go with 6 yrs, there will be a few hundred dollars left at the end, which I can either cash out or add to at that time (I have other RRSPs) and reinvest.
Please write your comments in the forum.