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New RRIF rules may work to your benefit

If you own a Registered Retirement Income Fund (RRIF), changes announced in the 2015 Federal Budget may affect the amount of money you withdraw each year from your savings.

Starting in the year after you open a RRIF, you must take out a percentage of your RRIF’s market value. The rate increases as you get older, until age 94. Before the budget, a 71-year-old had to withdraw at least 7.38% each year. Now the minimum rate at that age is 5.28%. So if the market value of a RRIF is $400,000, the minimum annual withdrawal amount decreased by $8,400 – that’s $700 per month. It’s great news if you want to preserve more of your wealth in your retirement years.

If you find that you don’t need the money, even with the lower withdrawal amount, you can contribute RRIF payouts to a Tax-Free Savings Account (TFSA), if you have room, or a non-registered investment account. Any income earned in a TFSA is tax free, even when withdrawn.  Automatic “in-kind” transfers can be set up from your RRIF to an account for you or your spouse.

There is no tax withheld on minimum RRIF payouts but it is taxable income when reported on your tax return. Any amount above the minimum is taxed at source. To reduce your combined tax bill, you can allocate up to half of your RRIF payouts to a spouse in a lower tax bracket.

Putting it back

If, at the end of 2015, you withdrew more than the new minimum, you can re-contribute the excess amount. For example, if you’re age 71 and you withdrew 7.38%, you can re-contribute 2.1%. It must be done on or before February 29, 2016, and will be deductible for the 2015 taxation year.

The new RRIF minimums offer more flexibility in planning your retirement income. If you’re thinking of taking advantage of the new rules, we can design a tax-efficient income stream that meets your needs.

RRIF minimum withdrawal rates

Age at the start of year

Previous rate (%)

New 2015 rate (%)

Reduction (%)

71

7.38

5.28

2.10

72

7.48

5.40

2.08

73

7.59

5.53

2.06

74

7.71

5.67

2.04

75

7.85

5.82

2.03

76

7.99

5.98

2.01

77

8.15

6.17

1.98

78

8.33

6.36

1.97

79

8.53

6.58

1.95

80

8.75

6.82

1.93

81

8.99

7.08

1.91

82

9.27

7.38

1.89

83

9.58

7.71

1.87

84

9.93

8.08

1.85

85

10.33

8.51

1.82

86

10.79

8.99

1.80

87

11.33

9.55

1.78

88

11.96

10.21

1.75

89

12.71

10.99

1.72

90

13.62

11.92

1.70

91

14.73

13.06

1.67

92

16.12

14.49

1.63

93

17.92

16.34

1.58

94

20.00

18.79

1.21

95+

20.00

20.00

0%

Your professional advisor can provide you with more information about RRIFs and help you determine the best income strategy for your retirement lifestyle.

Date reviewed: October 19, 2015

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.