Changes to the 2020 RRIF Withdrawal Factors

Erica Szczech - Aug 15, 2020
Back in March, the Federal Government reduced the 2020 minimum withdrawal amounts to RRIFs (Registered Retirement Income Funds) by 25 percent "in recognition of volatile market conditions and their impact on many seniors' retirement savings".
Coin House

Back in March, the Federal Government reduced the 2020 minimum withdrawal amounts to RRIFs (Registered Retirement Income Funds) by 25 percent "in recognition of volatile market conditions and their impact on many seniors' retirement savings".

Should retirees be taking advantage of this change? While the lower withdrawal requirement allows investments within a RRIF more time to potentially recover from a market downturn, there may be other opportunities for senios who don't require RRIF income.

One option would be to continue withdrawing RRIF funds but instead transferring investments "in kind" from the RRIF to a Tax Free Savings Account (TFSA), subject to available TFSA contribution room. The withdrawal from the RRIF will be taxable in the year of the transfer, but should investments recover, the TFSA will generate no taxable income on future withdrawals or investment income, unlike the RRIF.

There may be an additional tax opportunity. For seniors who have a lower marginal tax rate today than they expect to have in the future (including at death), drawing RRIF income above the minimum levels may be a way to potentially lower an overall lifetime tax bill. RRIF withdrawals will be taxed at current, lower tax rates, instead of at a higher anticipated future marginal tax rate. Again, if these funds are invested in a TFSA, any future gains will not be subject to the higher future marginal tax rates.

Note that the reduction in minimum withdrawal factors for the 2020 year also applies to LIFs and other locked-in RRIFs.

Please call for assistance with this or any other RRIF matters.