Welcome to the second edition of Questions of the Week. In our last post we discussed the recent declines in the price of oil, and the outlook for the energy sector going forward. This update will focus on the recent changes to Registered Retirement Income Fund (RRIF) minimum payments for 2020, what that means for individuals and how to take advantage of this opportunity.

 

Question: The Canadian government recently announced a reduction in this year’s annual RRIF minimum payment. What does this mean for me and how do I take advantage of it?

 

In the last month, the federal government has introduced many measures aimed at helping Canadians cope with the economic uncertainty brought about by the Covid-19 pandemic. On March 25th, one such piece of legislation was passed that lowered the minimum amount that must be withdrawn from a Registered Retirement Income Fund (RRIF) by 25% for this year.

 

As a reminder, the RRIF is the successor account to the Registered Retirement Savings Plan (RRSP). At age 71 all RRSPs must be converted to RRIFs. Functionally, the RRIF and the RRSP are very similar. You can hold the same investments in a RRIF that you can in a RRSP, and both are tax sheltered. One major difference between the two is that once you have opened your RRIF, you are required to withdraw a minimum percentage of your account each year. This withdrawal is treated as income and is taxed as such. Effectively, those who elect to lower their withdrawal amount this year will be realizing a degree of tax savings for 2020.

 

The decision on whether to reduce your RRIF minimum is dependent on your own personal income requirements and tax situation. For those who have built their RRIF payments into their monthly or annual cash flow plan, reducing the amount you are taking may not make sense. However, if the funds from your RRIF are not required for cash flow, you may wish to consider taking a lower RRIF payment this year. To do so, simply contact our office and let us know that you would like to reduce your minimum payment. We will review your current withdrawal plan with you and make the necessary changes to help you take advantage of this opportunity.

 

Thank you for tuning in to this edition of Questions of the Week. Our next update will discuss the Canadian banks, their recent performance and outlook going forward. Look for that post early next week and until then have a great weekend and stay safe.