Ottawa grants RIFF relief

Seniors who must sell hard-hit stock market holdings to fund this year’s mandatory withdrawal from their registered retirement income fund are getting a small break from the federal government.

The minimum required RRIF withdrawal for 2008 will be lowered by 25 per cent, Finance Minister Jim Flaherty announced yesterday in his update on the economy.

A seniors group described the move as a token measure that, while better than nothing, will do little to help people who have seen massive declines in the value of their RRIFs as a result of the global financial crisis.

“We’re talking about people who have lost 30 to 50 per cent of their retirement savings,” said Susan Eng, vice-president of advocacy for the Canadian Association for Retired Persons. “So taking 25 per cent off the amount they have to withdraw this year is a drop in the bucket.”

had urged Mr. Flaherty to announce a two-year moratorium on mandatory minimum RRIF withdrawals, which are set as a percentage of the value of a plan at the beginning of the year. The group’s concern was that seniors would permanently deplete their retirement savings by selling shares or mutual funds that might later bounce back in price.

The reduced RRIF withdrawal applies to 2008 and is available to RRIF-holders of all ages. People who have already made a RRIF withdrawal this year will be able to put the excess 25 per cent back into their plans until whichever date comes later – March 1, 2009, or 30 days after the RRIF measure is passed into law. The amount put back into a RRIF would be deductible from income for the 2008 tax year.

The government’s fiscal update reminds seniors that they do not have to cash in stocks or mutual funds to fund their RRIF withdrawal this year. Instead, they can do an “in-kind” transfer, where securities are removed from a RRIF and moved into a non-registered account. Taxes apply on the withdrawal, but the investments can live for another day.

“In-kind withdrawals solve at least some of the problem,” said Gena Katz, executive director of tax at the accounting firm Ernst & Young. “They’re probably worth more than the 25-per-cent reduction, frankly.”

In a letter to financial institutions released last week, Mr. Flaherty said it had been brought to his attention that there may be obstacles to in-kind transfers, and that some firms may not be advising clients of this option. He urged banks, fund companies and investment dealers to accommodate these transfers without charging fees. CARP’s Ms. Eng said the group has not heard any complaints about in-kind withdrawals.

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