Canadian Money Forum banner

1 - 18 of 18 Posts

·
Registered
Joined
·
9 Posts
Discussion Starter #1
Hello,

I am hoping to start making monthly rrsp withdrawals next year. I am still too young to make a RIFF. But I am feeling that my rrsp is too big and I will to start withdrawing so that I don't end up with a large forced withdrawals at high tax rates at the end.

My rrsp is heavy on REITS. So I was thinking to take the dividends monthly from now on. But the brokerage account I use bmo investor line is charging 50$ per withdrawal.

Any recommendations for a brokerage account that has no withdrawal fees ? Anyone else taking money out monthly ?
 

·
Registered
Joined
·
1,732 Posts
I think people who routinely withdraw from their RSP either convert it to a RIF, which usually doesn’t have withdrawal fees, or they make larger, less frequent withdrawals and pay the fee.
 

·
Registered
Joined
·
1,048 Posts
You can convert a RRSP to a RRIF at any age. But you are then subject to minimum annual withdrawals at a rate of 1/(90-age), until age 71 then the withdrawals are defined in a CRA table. And there is no withholding tax on the minimum annual RRIF withdrawal.

Why do you think your RRSP is getting too big? What will you do with the money you withdraw? If you will then save it in a non-registered account recognize that income (interest, dividends) earned in a non-registered account is taxed annually then capital gains tax is applied when you sell. Tax on dividends can really add up over an investor's lifetime. Consider a dividend focused portfolio that has a 4% dividend yield, and the tax rate on dividends is 25%. 0.04 x 0.25 = 0.01, or 1%. So 1% of the value is lost to taxes every year. Say the investor starts investing at age 30 and lives to 80, gradually saving then drawing down the portfolio over 50 years. 0.99^50 = 0.61, so potentially 39% of the portfolio value is lost to dividend taxes, then more to capital gains taxes. (Tax rate on eligible dividends in ON for an income of $98k to $150k is approx 25%. For an income <$49k the tax on dividends is actually negative so you need to do your own calculations. www.taxtips.ca is a good source for tax rates.)
 

·
Registered
Joined
·
3,789 Posts
You can convert a RRSP to a RRIF at any age. But you are then subject to minimum annual withdrawals at a rate of 1/(90-age), until age 71 then the withdrawals are defined in a CRA table. And there is no withholding tax on the minimum annual RRIF withdrawal.
This is true. However, you don't have to convert all of an RRSP to a RRIF. If you for example foresee drawing $200 a month for 5 years, you could convert $12,000 or more - whatever you see fit. If you later decide on more, then you can convert more RRSP money to a second RRIF. BMOIL allow/require you to file a withdrawal plan. Otherwise, there may be charges if you make numerous unscheduled withdrawals - something to check with them.
 

·
Registered
Joined
·
9 Posts
Discussion Starter #6
You can convert a RRSP to a RRIF at any age. But you are then subject to minimum annual withdrawals at a rate of 1/(90-age), until age 71 then the withdrawals are defined in a CRA table. And there is no withholding tax on the minimum annual RRIF withdrawal.

Why do you think your RRSP is getting too big? What will you do with the money you withdraw? If you will then save it in a non-registered account recognize that income (interest, dividends) earned in a non-registered account is taxed annually then capital gains tax is applied when you sell. Tax on dividends can really add up over an investor's lifetime. Consider a dividend focused portfolio that has a 4% dividend yield, and the tax rate on dividends is 25%. 0.04 x 0.25 = 0.01, or 1%. So 1% of the value is lost to taxes every year. Say the investor starts investing at age 30 and lives to 80, gradually saving then drawing down the portfolio over 50 years. 0.99^50 = 0.61, so potentially 39% of the portfolio value is lost to dividend taxes, then more to capital gains taxes. (Tax rate on eligible dividends in ON for an income of $98k to $150k is approx 25%. For an income <$49k the tax on dividends is actually negative so you need to do your own calculations. www.taxtips.ca is a good source for tax rates.)
I'm not going to do a non registered. I am planning to spend more,. My 70 year old self has enough already.

The problem with doing a RIFF conversion is that I won't be able to optimize by pausing the withdrawals in case I have a windfall year.

Yeah I am thinking I need to pay the 50$. I can recover it by transferring the trap every year to get the transfer in promos.
 

·
Registered
Joined
·
1,048 Posts
I'm not going to do a non registered. I am planning to spend more,. My 70 year old self has enough already.

The problem with doing a RIFF conversion is that I won't be able to optimize by pausing the withdrawals in case I have a windfall year.

Yeah I am thinking I need to pay the 50$. I can recover it by transferring the trap every year to get the transfer in promos.
OK, that clarifies things.

You cannot have a RRSP after the end of the year your 70 year old self turns 71. RRSPs must either be converted to a RRIF, used to purchase an annuity or withdrawn in cash by that time.
 

·
Registered
Joined
·
615 Posts
The problem with doing a RIFF conversion is that I won't be able to optimize by pausing the withdrawals in case I have a windfall year.
I'm pretty sure you can.
Simply move one year's worth of desired withdrawals from the RSP to the RRIF. If you get the windfall, you leave the RRIF empty. If you don't, you move money again the next year.
 

·
Registered
Joined
·
3,709 Posts
Hello,

I am hoping to start making monthly rrsp withdrawals next year. I am still too young to make a RIFF. But I am feeling that my rrsp is too big and I will to start withdrawing so that I don't end up with a large forced withdrawals at high tax rates at the end.

My rrsp is heavy on REITS. So I was thinking to take the dividends monthly from now on. But the brokerage account I use bmo investor line is charging 50$ per withdrawal.

Any recommendations for a brokerage account that has no withdrawal fees ? Anyone else taking money out monthly ?
I am with RBC Direct Investing for that exact reason. They have a "Royal Circle" program that says that if you have $250,000 with them, then you and your entire household can withdraw from an RRSP for free.
 

·
Registered
Joined
·
10,968 Posts
... I am still too young to make a RIFF. But I am feeling that my rrsp is too big ... My 70 year old self has enough already ...
Maybe I'm reading the age wrong?

Where one is age 70 this year and one starts the RRSP withdrawals next yet (presumably the year one turns age 71), AFAICT there's little to no time to reduce the RRSP before it has to be collapsed. Options for your own RRSPs - Canada.ca

It seems easier to convert to a RRIF slightly early versus moving accounts around to make back the $50 withdrawal fee.


Cheers
 

·
Registered
Joined
·
9 Posts
Discussion Starter #11
I am 40 year old, I meant my 70 year old future self will be fine if the RRSP stops growing.

OK, that clarifies things.

You cannot have a RRSP after the end of the year your 70 year old self turns 71. RRSPs must either be converted to a RRIF, used to purchase an annuity or withdrawn in cash by that time.
 

·
Registered
Joined
·
9 Posts
Discussion Starter #12
This is true. However, you don't have to convert all of an RRSP to a RRIF. If you for example foresee drawing $200 a month for 5 years, you could convert $12,000 or more - whatever you see fit. If you later decide on more, then you can convert more RRSP money to a second RRIF. BMOIL allow/require you to file a withdrawal plan. Otherwise, there may be charges if you make numerous unscheduled withdrawals - something to check with them.
So I can do a partial RIFF in January each year and draw completly that year.
 

·
Registered
Joined
·
9 Posts
Discussion Starter #13
I am with RBC Direct Investing for that exact reason. They have a "Royal Circle" program that says that if you have $250,000 with them, then you and your entire household can withdraw from an RRSP for free.
Ok nice RBC Royal circle is the answer then.
 

·
Registered
Joined
·
663 Posts
Hope the OP is ok with me tagging onto this thread because I have a simular situation which I haven't decided on how to proceed.

I'm with TDDI which looks like it charges $25 per partial RRSP withdrawal. Ideally, I'm looking to start annual withdrawals from my RRSP around age 52 using VPW percentages as a guideline. And I'm not really concerned about withholding taxes because I feel it kind of just works it way out during the following year's tax return/refund.

If I withdraw from my RRSP, I keep full flexibility but I'm dinged $25 each withdrawal.
Or I can convert (some of) the RRSP to a RIF to save the $25 fees and use the missus age (who is a few years younger than me), to keep the minimum withdrawals as low as possible. The base goal is to withdrawal against the VPW percentages (against my age which should be higher than the min RRIF withdrawals against the missus' age early on) but I feel I may want to vary a bit depending on market conditions, personal needs, etc.

If I convert all of my RRSP to a RIF, can I convert part of my RIF later on to an annuity? Does the RIF conversion to an annuity get taxed as a withdrawal or does it get converted "tax-free" and only the annuity payments get taxed?
TDDI seems to charge $100 for a full withdrawal of a RRIF. So I'm guessing I can't convert say $20k of my RRSP (knowing that's how much I want to withdraw for the year) to a RRIF and then just withdrawing $20k from the RRIF to save $25 and end up being charged $100. Would I be able to start a RRIF with say $50k from my RRSP, then top up the RRIF account yearly with additional funds converted from my RRSP account, or would I have to set up another RRIF account for each RRSP conversion?
 

·
Registered
Joined
·
671 Posts
TDDI seems to charge $100 for a full withdrawal of a RRIF. So I'm guessing I can't convert say $20k of my RRSP (knowing that's how much I want to withdraw for the year) to a RRIF and then just withdrawing $20k from the RRIF to save $25 and end up being charged $100. Would I be able to start a RRIF with say $50k from my RRSP, then top up the RRIF account yearly with additional funds converted from my RRSP account, or would I have to set up another RRIF account for each RRSP conversion?
I'm with TDDI and that's what I do. Just transfer more than what you want to withdraw that year; keep the RRIF balance above 0. There is only one RRIF, you don't set up another RRIF account for each RRSP conversion. They make me go to a branch to transfer from RRSP to RRIF, so I transferred what I thought I would want for five years. The minimum withdrawal is still below what my target withdrawal is, so they do the minimum (no withholding tax), and I withdraw any more I want (has withholding tax). If I were you, I'd transfer $100k from your RRSP - the minimum is still well below the $20k you want.
 

·
Registered
Joined
·
3,789 Posts
So I can do a partial RIFF in January each year and draw completly that year.
That wouldn't really make sense. Much better to convert a larger amount to RRIF and draw at least the minimum each year. In any year, you can draw more than the minimum without a BMOIL fee, but withholding tax will be deducted from what they call the excess - any amount over the minimum.

If you draw from a RRSP the entire amount will be subject to withholding tax. The rates for RRSP and the RRIF excess are below.

You don't lose the withholding - it is treated like an installment of your taxes for next April. You are just out of pocket that amount for a while.

Any withdrawals from your RRSP are immediately subject to withholding tax. If you withdraw up to $5,000, the withholding tax rate is 10%. If you withdraw between $5,001 and $15,000, the withholding tax rate is 20%. If you withdraw more than $15,000, the withholding tax rate rises to 30%
 

·
Registered
Joined
·
23 Posts
I'm with TDDI and that's what I do. Just transfer more than what you want to withdraw that year; keep the RRIF balance above 0. There is only one RRIF, you don't set up another RRIF account for each RRSP conversion. They make me go to a branch to transfer from RRSP to RRIF, so I transferred what I thought I would want for five years. The minimum withdrawal is still below what my target withdrawal is, so they do the minimum (no withholding tax), and I withdraw any more I want (has withholding tax). If I were you, I'd transfer $100k from your RRSP - the minimum is still well below the $20k you want.
First, there is no fee for a full RRIF withdrawal at TD DI to my knowledge (did that a couple times already).
Basically, we transferred an amount from RRSP to RRIF then withdrew the full amount from the RRIF, paying 30% withholding tax in December (got back the overpayment at tax time).
Not sure also why you mention keeping balance above 0? That is not required for any reason to my knowledge. The RRIF will stay open with a zero balance.
 

·
Registered
Joined
·
1 Posts
If you're looking to avoid taxes, just withdraw the minimum. Do not pull everything out all at once. I've had a colleague encounter a similar dilemma a while back, and I suggest you read up more on RRSP and RIFF starting with this article. You can also read up on government articles regarding this subject to make sure that you don't have hiccups in the process. Heed what the others have posted here, and select what's applicable for you, I've been reading the replies on this thread and they are on point.
 
1 - 18 of 18 Posts
Top