“First of all, many people get rattled in these big, fancy financial institutions,” CARP’s Ms. Eng said. “Plus, this is the time that advisers take the time to sell them something else. Plus, seniors are already extremely anxious.”
Another issue raised by Ms. Eng is that seniors must pay tax on the full withdrawal amount, even if they plan to put 25 per cent of it back into the plan later.
Still another problem with putting money back into a RRIF is the risk that the stock market jumps in the weeks ahead. If that happened, a senior could be put in the position of selling a beaten-down investment now at a low price to fund a RRIF withdrawal and then reinvesting the money back into the plan later, when the markets are higher.
A way to avoid this is to make an “in-kind” withdrawal from a RRIF, which means transferring securities out of the plan and putting them in a regular non-registered investment account. The transfer is considered a taxable transaction, but the securities are left intact to potentially rebound from the stock market decline.
Later on, when it’s time to again contribute some money to your RRIF, Ms. Cardy said you should be able to move securities back into the plan from your non-registered account.
She argues that there’s a positive side to making the full RRIF withdrawal this year and not taking advantage of the 25-per-cent break.
By taking more money out of the RRIF right now, you lower the value of the account that will be used to set the 2009 minimum withdrawal.
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RRIF Q&A
What are the minimums?
Here’s how the Department of Finance puts it: “Each year, beginning with the year in which individuals turn 72, they must withdraw at a minimum a specified percentage of the value of the RRIF, determined at the beginning of the year, as retirement income. This percentage starts at 7.38 per cent in the first year a minimum withdrawal is required and rises to 20 per cent for age 94 and over.
What’s all the fuss about the minimum withdrawals?
To pay for the minimum withdrawal, some seniors will have to sell hard-hit stocks and funds that might otherwise benefit from a market rebound.
What relief has the government provided?
The government has proposed to allow seniors to withdraw 75 per cent of the usual required minimum amount for 2008.
What if people have already made their RRIF withdrawal(s) for 2008?
Seniors have until the later of March 1 or 30 days after the RRIF legislation passes to re-contribute 25 per cent of their 2008 withdrawal.
