Those who only make one payment near the end of the year can reduce the amount by 25% without worrying about repercussions from the CRA.
The same rules apply to life income funds and locked-in retirement income funds.
The amounts involved are not trivial. Mastracci says many clients have RRIFs worth $500,000 or more. For a 72-year-old, the normal 7.48% mandated minimum withdrawal would be $37,400 — income that is taxable the year it’s withdrawn. A 25% reduction takes it down to $28,050, with a corresponding lower tax hit.
While it’s possible to make withdrawals from RRIFs in one’s 60s, there’s little reason to do so unless you wish to create income to qualify for the pension tax credit, Mastracci says. Most seniors are better off leaving money tax-sheltered in an RRSP or RRIF as long as possible.
Remember that those who turned 71 in 2008 must de-register their RRSP by Dec. 31, either by cashing out and paying tax on it, purchasing an annuity or converting it to a RRIF. – Jonathan Chevreau blogs at www.wealthyboomer.ca.
