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Discussion Starter #1
Say my portfolio was 100% dividend yielding stock, and i get to retirement and convert my RRSP to a RRIF.

Do i have to convert the entire RRSP amount to the RRIF? Or just a portion?

Also I assume when you withdraw from the RRIF - thats when you get taxed at your marginal rate?

Im assuming your marginal rate includes CPP and OAS in its calculation?

Thanks!
 

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Yes; the whole thing.

Yes; you are taxed at your marginal rate on withdrawals.

Yes; CPP and OAS are taxable income. If you earn over about $66K today, you will have to repay part of your OAS. More here. This is not a "tax" per se but a clawback of benefits which would otherwise be payable.
 

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Discussion Starter #4
Well Im aiming to retire around 50-55 years old. I'm assuming id still convert it to RRIF and live off the dividends.

Say i die at the age of 100, living off the dividends all the way - can i leave my kids the money that is currently contained in my RRIF? Cause there would be a lump sum of money paying dividends.

I'm just weighing up TFSA for dividends vs RRSPs - i want to figure out whether there are any pitfalls of leaving my money for wife/kids whether its held in an TFSA or RRSP.
 

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If you retire at 55, just withdraw from the RRSP account.

Yes, you can leave your kids whatever remainder is left in your RRSP/RRIF. If you are survived by a spouse, an RRSP/RRIF can roll over tax-free into their hands.
 

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Discussion Starter #6
And i was slightly confused by some answers to my other question -

Am I right in thinking that TFSA has no impact on the money i receive from OAS and CPP, whereas RRSP can impact those payments?
 

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Yes, you are right. Here's the authoritative word on this issue:

Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
 

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You are very welcome. I try to promote the CFP as a valuable brand. :p (Any CFP should be able to answer these kinds of questions in their sleep.)
 

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Yes, if you are over 65. However, if your withdrawals are from a TFSA, they are not taxable income, hence you don't need a tax credit. Here's more info on the pension tax credit.
 

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”Underworld” said:
Say my portfolio was 100% dividend yielding stock ...
Irrelevant ... the RRIF conversion rules are not affected by your particular choice of asset allocation.

Do i have to convert the entire RRSP amount to the RRIF? Or just a portion?
Before age 71, you can convert just a portion, or all of it, or none of it ... your discretion entirely ... by the end of the year you turn 71, you must convert the whole thing.

Also I assume when you withdraw from the RRIF - thats when you get taxed at your marginal rate?
NO ... RRSP withdrawals are not taxed at your marginal rate ... they are taxed as ordinary income ... not the same thing.

Im assuming your marginal rate includes CPP and OAS in its calculation?
Forget the marginal rate. That’s not the rate that matters.

Well Im aiming to retire around 50-55 years old. I'm assuming id still convert it to RRIF and live off the dividends.
There’s no advantage (under current law) to convert to a RRIF prior to age 65, but yes, you certainly could draw dividends-only out of the RRSP and live off those, in the early years of retirement.

Say i die at the age of 100, living off the dividends all the way - can i leave my kids the money that is currently contained in my RRIF? Cause there would be a lump sum of money paying dividends.
At the age of 100, your RRIF value would be very close to NIL ... there is a mandatory RRIF withdrawal schedule that forces the gradual deregistration of the account ... although you hear a lot of moaning and griping about this mandatory withdrawal schedule, you should, in fact, be thankful that it exists, because it prevents people from making the very mistake that you’re alluding to (drawing returns only, and leaving the capital untouched).

Note that it is a mandatory withdrawal schedule, not a mandatory spending schedule ... you are not forced to sell your existing shareholdings, you are only forced to remove them, on a gradual basis, from underneath the RRIF umbrella ... so you can still have that big pile of dividend-paying shares at age 100, you just can’t have them inside the RRIF.

I'm just weighing up TFSA for dividends vs RRSPs - i want to figure out whether there are any pitfalls of leaving my money for wife/kids whether its held in an TFSA or RRSP.
You can leave both a TFSA and an RRSP/RRIF to your wife, with no tax consequences, and with no change to the tax sheltered status ... it simply rolls over into her TFSA/RRSP ... however, you cannot do the same for your kids* ... if you die without a spouse the TFSA immediately loses its tax-sheltered status, but there is no tax consequence for any returns earned prior to your death, while the RRSP/RRIF would be immediately deregistered, and its entire value as of your date of death would be added to your taxable income for that year.

Note that this doesn’t prevent you from leaving your assets to your kids, and doesn’t diminish their inheritance ... it only means that the tax-sheltering ends when you end.

*there are exceptions if your kids are disabled ... I am assuming they are not.

Am I right in thinking that TFSA has no impact on the money i receive from OAS and CPP, whereas RRSP can impact those payments?
No, that’s not right ... CPP payments are unaffected by both TFSA and RRSP/RRIF withdrawals ... OAS is subject to clawback, and you are correct that TFSA has no impact, while RRSP could ... however, under current rules, only the wealthiest 3% or so of all seniors have sufficient income to be exposed to OAS clawbacks at all ... if you don't realistically expect to be among the top 3%, then don't worry about it.
 

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With drawls are taxed as ordinary income NOT at your marginal rate?

COuld you explain this? Arent they on e and the same? Ordinary income is taxed at your bracket right?
 

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Yes, you are right. Here's the authoritative word on this issue:

Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
I dont get the last point, TFSA assets can generally be transferred to a spouse upon death? Since it is a tax free account couldn't you just name anyone as a beneficiary and have no tax payable?
 

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I dont get the last point, TFSA assets can generally be transferred to a spouse upon death? Since it is a tax free account couldn't you just name anyone as a beneficiary and have no tax payable?
See this discussion thread on Canadian Money Forum. http://canadianmoneyforum.com/archive/index.php/t-82.html
TFSA may have either a successor Account Holder or a Beneficiary - some provinces/financial institutions allow you to name both, with the Successor Account Holder taking precedence.

Only certain qualified persons can be Successor Account Holders - usually a spouse. For a successor Account Holder the TFSA is transferred intact - the recipient's TFSA room is automatically increased to allow for it. There are no tax consequences either when it is transferred or if later withdrawals are made.

In the case of a beneficiary, the TFSA has to be collapsed, and the proceeds are paid to the beneficiary, because plain beneficiaries are not entitled to any extra TFSA room. The tax consequences are minimal. Only earnings between the date of death and the date of distribution are subject to tax (because the tax-sheltered account is considered to have ended on the DoD.) There is some ambiguity about who owes the tax - the estate of the deceased or the beneficiary. Maybe it depends on the province and/or the wording of the financial institution contracts.

PS: when I think about it, it should logically be the estate. The financial institution probably has to convert the holdings to cash and send it to the beneficiary. And there are reasons why there might be delays in this. The beneficiary never has possession of the securities, so why should they be taxed on the earnings? Unless the financial institution is allowed to make a transfer in kind and back-date the transfer? But I can't see that working - portfolio might have taken a loss in the meantime, but beneficiary couldn't sell ahead of the loss.
 

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bean said:
COuld you explain this? Arent they one and the same? Ordinary income is taxed at your bracket right?
They are not one and the same ... there are rafts of deductions and credits that come into play to determine the actual amount of tax owing in any given year ... the bracket rates are merely one of several elements of that calc.

I dont get the last point, TFSA assets can generally be transferred to a spouse upon death? Since it is a tax free account couldn't you just name anyone as a beneficiary and have no tax payable?
It is not a matter of tax payable prior to or at the date of death, it is a matter of tax payable in the future ... in one case (rollover to surviving spouse – successor holder) the account retains its tax-free status ... in the other case (any other beneficiary) it does not.

If there weren’t already enough motivators for full use of the TFSA, this is another ... there are many life-changing effects when a spouse dies ... among them there is the piling on of savings/investment assets onto the surviving spouse ... income splitting opportunities no longer exist, and the surviving spouse can suddenly face much higher tax rates on all forms of income ... tax-sheltering can be very valuable in that situation ... but if a spouse dies without having made use of his or her available TFSA contribution room, that contribution room simply evaporates ... vanishes forever.

toolbox said:
The financial institution probably has to convert the holdings to cash ....
Why would they have to do that? I think you’re imagining restrictions that don’t exist. They could just transfer the securities out of the trust and into a new brokerage account in the beneficiary’s name ... no back-dating required.
 
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