Question about transition from RRSP to RRIF | Page 2 | RRSPs and RRIFs | Discussion forum

Good read. My thought is that the financial institutions put their best spin on what they are legally bound to do. And we would do the same thing if it was our business. They get to keep your term deposit! I guess as mentioned here, some institutions may avoid being put into that position of having to accept rolling over an RRSP to RRIF mid term.

Here are some other questions for DYI investors in this position. Does the mandatory withdrawal receive the same rate of interest. Can you withdraw more than the minimum annually? If you have more than one GIC in your RRIF account at different terms and rates which one do they take the minimum from? Some institutions have different rules which may or may not be beneficial. And I think we all like to see this flexibilities just in case we would want to use the option vs no option. The reason I mention this is you need to know ahead of time as you may do a better job meeting the withdrawal requirements. I plan to have RRIFs soon and do know that Accelerate has better options than Outlook Financial.

My Manulife advisor says if I put a GIC into a RRIF account they will NOT take the minimum withdrawal from it and that he and I would have to set up either some laddering to allow a maturing GIC every year in an amount to meet the withdrawal or have other investments that are able to become liquid like cash, ETF, shares or a mutual fund. And keep in mind some of the latter may include a commission to sell, so you must choose wisely.

Loonie said

Here are some more useful comments:

"Points to consider:

A ) - Taking payments annually at the end of the year will permit the maximum growth opportunity for your RRIF investments

B ) - Once you start receiving RRIF income you may have to pay quarterly income tax installments if you are not paying them already. If you take payments annually at the end of the year, the income will still have to be included for your quarterly installments and you will owe tax before you actually receive the money.

C) - With GIC-type RRIFs, most companies quote the interest rate based on annual payments. If you take more frequent payments such as monthly, you will normally receive the actuarial equivalent of the annual rate. Your contract will show the annual rate of return but you are actually receiving a lower rate because you are taking the payments more frequently.

D) - With self directed RRIFs ensure you have allowed for enough liquidity within the plan to meet the timing of your withdrawals.

2. Amount of Withdrawals:
Withdrawals can be for any amount as long as the scheduled minimum is taken each year. Unless you choose otherwise, there is no withholding tax deducted from a minimum RRIF payment. If your chosen payments exceed the minimum amount, withholding tax will be deducted from the excess over the minimum. For example, if your minimum payment is $1,000 per year and you withdraw $1,500 per year, your withholding tax will only be calculated on the $500 excess over the minimum. The withholding rates are 10 per cent for excess amounts up to and including $5,000, 20 per cent for amounts between $5,000 and $14,999, and 30 per cent for any amounts over $15,000.

Points to consider:
A) - With self directed RRIFs ensure that your investment selections will provide the liquidity to meet the amount of the payments you have chosen.

B) - GIC RRIFs will withdraw the payments directly from the investments according to the schedule chosen so there is very little management required. You will know ahead of time what your minimum payment will be each year of the selected term as well as what your end of term RRIF balance is.

C) - GIC RRIFs are however the most inflexible when it comes to making unscheduled withdrawals. Once you establish a payment amount, whether it be the annual minimum or a larger fixed amount, most GIC RRIF issuers would prefer that you stay with the schedule until the end of the interest rate term.

Some companies will allow unscheduled withdrawals while others may allow them with a penalty, so check the institution's policy before you commit your funds.

D) - With mutual fund and self directed RRIFs you will not know what the minimum payment is for the following year until after the December 31 market valuation of the portfolio.

E) - Mutual fund and self directed RRIFs are the most flexible for making unscheduled withdrawals. However, with self directed plans you will have to ensure that your investment selections will provide available resources for the payments you desire.

3. Asset Selection:
You can hold basically the same investments in a RRIF as you can in an RRSP.

Points to consider:
A) - Mutual fund and self directed RRIF portfolios are market valued every December 31 to determine the following years minimum payment. If the market is high at this time it will inflate the following years minimum. In the case of mutual fund RRIFs when the time comes to withdraw from the fund to make your payment the market could be in a trough so you will have to redeem more units to make the inflated payment. This could exhaust your RRIF faster than planned.
A similar problem can occur in self directed RRIFs with government bonds and strip bonds/coupons which you may intend to hold to maturity. The maturity value may be fixed but these bonds may be market valued at amounts substantially more that the maturity value or accrued value when rates are falling. Therefore, your minimum for the following year is again inflated. If you are only holding bonds in your RRIF you may have to redeem investments to meet the inflated payments."
http://www.fiscalagents.com/ne.....poin.shtml

WOW! All good points. We all have our own agenda and let me explain a bit about mine.
My wife and I have pensions that includes a CPP bridge that will disappear this year at age 65 and will be replaced + - with OAS. We have been withdrawing at least $15000 each from our RRSPs every year as long as it does not put us into the next tax bracket. So $15000 nets $12000 and the first $5500 goes into TFSA and the balance is invested in a GIC. It will be so much nicer if the TFSA amount doubles as indicated by the late Mr. Flaherty....$15,000 nets $12000 and $10,000 to TFSA all protected from income tax. We treat this money as untouchable.....lol. My reasons for winding down our RRSP funds can be explained in another topic and I do plan to see an accountant that can help out with taxation etc. and unless he points out a major reason that I should not proceed I will continue my journey. And either way I will still wean away from Manulife as I can do better than what rates they offer. So now my income that can be split with my wife is lessened as OAS and CPP cannot be used for income splitting (where in the past my CCP bridge could). At the age of 65 your RRIF withdrawals can be split so to continue my withdrawal plan we need to move my RRSP funds to RRIF. My employer is also trying to buy out a lot of our benefits which I may or may not take and next year I have an endowment insurance policy pay out that will affect how much I can withdraw from RRSP or RRIF and stay in the desirable tax bracket so I the need to only fund the RRIF with just enough, and in the event of not taking out $15000 the minimum withdrawal will not impact tax wise on the other unexpected wind falls!
Sooooo my RRIF withdrawals between the age of 65 and 71 will always be more than the minimum and I will have to control by doing some laddering.

Once again ..... all great information!

Loonie said

This is a bit off-topic, but you CAN split your CPP to some extent - not through your income tax return, but at source. I think the decision has to be made though when you first apply for it; not sure; and that it can't be changed later. Something to investigate anyway. This may no longer be relevant to you, Peter, but might help someone else who is reading this thread.
Thanks for the info on Accelerate vs Outlook.
Situation with "advisors" sometimes reminds me of dealing with certain car salesmen. There are a lot of things that they seem not to know, and one wonders if it is on purpose.
I was re-reading that lengthy statement from fiscalagents, which says that the institution doesn't charge withholding tax on the required minimum withdrawal from rrif, only on the extra that you choose to take out. I am sure I was docked on the whole thing by TD last year. Fiscalagents is correct, however: http://www.cra-arc.gc.ca/tx/rg.....g-eng.html as follows: "Withholding Tax on Payments from a Registered Retirement Income Fund (RRIF)... Under this type of arrangement... income tax must be withheld at source on amounts in excess of the minimum using the lump-sum withholding tax rates. No withholding is required on minimum amounts."

Hi Loonie. Thanks, I was aware of that. Rather than dealing with CPP and then changing back I think I can totally control it using the RRIF process.

Yes, Advisers, Car Sales, Realtors and Lawyers.........in most cases but not all.

The tax withhold is not a big deal to me as you have to pay what is due and if too much is withdrawn, it is refunded. My wife has no deductions from her pension and neither of us have deductions from our CPP so...we always have to pay income tax. The reason why I only do $15000 each is because 30% is withheld if you take more. BUT if you do more than one withdrawal or withdraw from another institution you can stay at 10 or 20% withholding BUT comes year end it all catches up with you. I believe the tax withholding is per withdrawal. The only little advantage is you catch a few extra dollars of gain if you re-invest the withdrawal. I always do withdrawal request by letter and give a summary of my expectations so my request is very clear and if it cannot be executed that way it is up to my adviser to let me know if it cannot be done. And he thinks tax withhold is 20% for $5000 and under..... When I spin off to other institutions I will email an example and ask what format do I have to supply to achieve my request.

Loonie said

The financial institution is OBLIGED by law, in my understanding, to withdraw the minimum from your RRIF. If all you have is GICs, then they will have to take it out of there.

Careful; you may not like the result. The institution is obliged to withdraw at least the minimum. I think the RRIF withdrawals can be in-kind and not have to be in cash.

If one had only 10 shares in an RRIF that could not be easily be sold and the minimum for the year is 4.9%, then the institution could withdraw 1 of the 10 shares and ask for a cheque for the tax withholding on the value of the 0.51 shares of excess withdrawal.

If the minimum for the year is 4.9% and the RRIF only had a $10,000 GIC that matures in three years, the institution could try to redeem $490 of the GIC. If the GIC is not redeemable at all before maturity, it may try to split the GIC into a $490 GIC and a $9,510 GIC with the original maturity date and withdraw the $490 GIC in kind. If the issuer of the GIC can't handle splits, the institution would be forced to withdraw the entire $10,000 GIC and ask for a cheque to cover the tax withholding for the $9,510 excess withdrawal.

Loonie said
I wonder if the Manulife advisor is trying to intimidate you into investments that you don't want to make (which will reward him/her better). Or maybe he is just conveniently ignorant. This is speculative on my part, but one has to ask these questions and be satisfied with the answers. I would push this advisor to put it in writing if it were me. And then, if he persists, I would ask CRA the same question.
It may be that they will refuse your investment in a GIC because they don't want to be bothered with it (rather than that they can't), but how would we know which it is?
See also this earlier discussion, https://www.highinterestsavings.ca/forum/rrsps-and-rrifs/how-to-structure-rrifs/

I'd be curious to know what you have found that is better about the options at Accelerate as compared to Outlook (or any others for that matter).

Surely somebody on this forum must have already crossed this hurdle, and can report?

The restrictions are not always from CRA and the tax laws. Instead, the restrictions can be from limitations in the bookkeeping systems of the financial institutions. CRA will say "Yes, that's allowed." But, a financial institution may say "No, that's not allowed."

The "No" means the institution can't handle it and not that it is not allowed under tax laws.

For example, foreign currency is allowed in RRSP's. So, one could theoretically hold US$, Canadian dollars, Euros, New Zealand dollars, and Japanese Yen in an RRSP. But, I have never seen one that can hold more than US$ and Canadian dollars.

So would we say the best way to deal with the minimum withdrawal is to prepare our GIC's or stocks to be liquid in an amount equal to or more (as desired), ourselves?. I think most have a cash account within their overall RRIF that would hold those cash funds to handle the withdrawal.

Norman1 said

Yes, that would be the best, if the RRIF does not handle in-kind withdrawals.

If the RRIF one has does support in-kind withdrawals, then I think the best would be to make sure some individual property in the RRIF is worth at least the minimun required withdrawal to be individually withdrawn, in kind, each year.

For example, instead of one $10,000 3.05% five-year compounding GIC, I think this set of GIC's, each 3.05%, compounding, and maturing on the same date in five years from now, could satisfy minimum withdrawals of 7.59%, 7.71%, 7.85%, and 7.99%. I hope the math is correct:

1. $760
2. $713
3. $670
4. $628
5. $7,229

Great idea but I am not poking holes or spitting hairs. Most of the places I deal with have a minimum $1000 deposit and some institutions require a minimum of $5 or $10 thousand for a RRIF GIC ....likely because of the extra maintenance.
What of you totalled your first 4 numbers and bought a GIC and asked the institution to remove the first four withdrawals from it?

Regards Peter

Loonie said

It really sounds like they are practically forcing us to keep some of our money in vehicles that have little reward. I don't like this, and the fact that it is so complicated, and so easy to get yourself into a mess apparently. Annuities are starting to look more attractive!
I am also fearful that we may never get straight reliable answers from these people. By the time you actually make the withdrawal, they may have changed their rules. Once they have gone ahead and taken whatever monies out of whichever registered pocket, you can't stuff it back in, even if they are wrong.
I am feeling very confused and distrustful. The language does not seem to be transparent and I just don't know what I might be getting myself into.
Question for Norman1: Have you experienced the scenarios you have described, or are you envisioning them as possibilities? It sure would be nice to know which institutions have the most user-friendly rules.

Please don't be too concerned as there have been a lot of good ideas here. Communicate with your financial institution find out what their conditions are. Once you know what your needs are, put your plan together and see if it will work with your financial institution. Modify your plan, till it works. We probably have more knowledge than most people who already have a RRIF. We can now enter the arena with a plan of execution. I don't know if you really want to open the can of worms in regards to an annuity.