2020 Changes to RRIF Withdrawal FactorsCarly Broetz, BBA, Wealth Advisor
Back in March, the Federal Government reduced the 2020 minimum withdrawal amounts for Registered Retirement Income Funds (RRIFs) by 25 percent “in recognition of volatile market conditions and their impact on many seniors’ retirement savings.”1
As a reminder, the RRIF withdrawal factors are based on age. If you were 71 at the beginning of the year, under the existing rules you would be required to withdraw 5.28 percent of your RRIF in the year. For a RRIF with a value of $100,000 at the start of the year, the required withdrawal amount would be $5,280. With the changes made for the 2020 year, the withdrawal requirement would be $3,960, or 25 percent less.
Should Retirees Withdraw Less from the RRIF?
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 seniors who don’t require RRIF income.
Consider, instead, transferring investments “in kind” from a RRIF to a Tax-Free Savings Account (TFSA), subject to available TFSA contribution room. While the withdrawal from the RRIF will be taxable in the year of withdrawal, 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 the current, lower tax rate, instead of at a higher anticipated future marginal tax rate. If these funds are invested in a TFSA, any future gains will not be subject to the higher future marginal tax rates. Note that withholding taxes will apply to RRIF withdrawals in excess of the minimum amount. Also keep in mind that the effect on any income-tested government benefits should be considered when contemplating this strategy.
Note that the reduction in the minimum withdrawal factors for the 2020 year also applies to Life Income Funds (LIFs) and other locked-in RRIFs. If you have already withdrawn more than the lower minimum amount in 2020, you are not permitted to re-contribute any excess to your RRIF.
Please call for assistance with this or any other RRIF matters.