True.Springbok wrote:It is not an additional credit. It is just the Pension Income Credit. Nothing new, we have been doing it for years.
The new element is the ability to split the income with spouse and generate an added $2000 deduction for her.
Yes, that's right. But how many spouses have no registered savings? Does not take much to come up with a $2k annual withdrawal.kcowan wrote:True.Springbok wrote:It is not an additional credit. It is just the Pension Income Credit. Nothing new, we have been doing it for years.
The new element is the ability to split the income with spouse and generate an added $2000 deduction for her.
It is the few years that I was thinking about. Generally, one reaches 65 and can share the pension and get the extra $2000 until the spouse also reahces 65. But not a big deal for sure. Avoiding the reduction in age exemption would seem to offer more savings.Springbok wrote:For a few years, we may be able to income split, but not sure what net effect will be yet. If we both stay in same bracket, total tax may not change much.
Jamie Golombek wrote:What if you don't participate in a Defined Benefit plan but save for your retirement through an RRSP? In that case, you're out of luck as you can't split your registered savings with a spouse or partner until you're at least 65 years old.
In an attempt to respond to complaints about this inequity, the government stated: "Without the age-65 eligibility rule, many individuals who are not retired could gain significant tax advantages well before they attain age 65 by arranging to withdraw money each year as RRSP annuity or RRIF income while still saving for retirement. Individuals in receipt of RPP income, on the other hand, generally have little control over the timing of their pension payments -- they usually only receive such payments when they are retired."
Clearly, the law discriminates against Boomers who wish to retire early but are not members of Defined Benefit plans.
For the legions of these people, the prior use of spousal RRSPs may provide the tax savings needed to justify early retirement -- or savings roughly equivalent to what would have been available through the new pension splitting rules.
Yes that was my impressions as well. By making spousal contributions to RRSPs, they already had the splitting potential benefits that are just now being made available to DB retirees. And those with DB pensions had severely curtailed contribution room to RRSPs during all their years of employment. So it was difficult to do any serious splitting.Bylo Selhi wrote:Splitting can help you retire earlierJamie Golombek wrote:For the legions of these people, the prior use of spousal RRSPs may provide the tax savings needed to justify early retirement -- or savings roughly equivalent to what would have been available through the new pension splitting rules.
That's not really what it says. Withdrawals can come from different sources, but if you sell equities at a time they are low, you will kill the portfolio.In Shake's primer it is stated that withdrawals should be done with maturing bonds
IF she also draws on CPP, then I would assume the CPP qualifies for the $2000 pension credit and starting an RRIF would not be necessary (or prudent).brucecohen wrote:Does your mom have a workplace pension that pays her at least $2,000/year? If not, she should open a RRIF now and move in enough money to generate a $2,000 withdrawal annually. (Remember: there's no limit on RRIF withdrawals) Since she's 65, that will generate a $2,000 pension income credit for her. This offsets $2,000 of low bracket tax.
Neither CPP nor OAS qualify.AltaRed wrote:IF she also draws on CPP, then I would assume the CPP qualifies for the $2000 pension credit and starting an RRIF would not be necessary (or prudent).
That would be more tax-efficient today but you also have to look at the impact of forced fully taxable RRIF withdrawals down the road. Doing some RRSP/RRIF withdrawals now means you're prepaying tax at a lower rate than would otherwise apply. Whether that makes sense depends on the time value of the money and the gap between today's MTR and the future's.I agree with Marcherry's comment that selling some equities each year from the taxable account would be more tax efficient than being fully taxed on RRSP/RRIF withdrawals.
Indeed, if the BMO etc equities are to be sold in the next 10 years, then yes, they should definitely be sold while the marginal tax rate is low (like now). But they could hopefully be kept for quite a bit longer, since in a couple of years the withdrawals from the RRIF can be sold first. For argument's sake, if these were some variation on XIU, would I prefer to sell them in 15 years (at a higher marginal rate) than today, or are there cases where one should incur capital gains much in advance (the inverse of a superficial loss?)marcharry wrote:I will only comment on #3. Why would you not sell those non-reg stocks over the next 6 years(BMO etc). Her tax rate will not go down if she is withdrawing 90K/year. Her period of lowest income is now and you are trying to lighten up on equities. Unless you foresee a period when her marginal rate is lower than deferring the cap gains will not achieve anything.
Straight from the source Thanks, glad to see my understanding was correct, then.Shakespeare wrote:Withdrawals can come from different sources, but if you sell equities at a time they are low, you will kill the portfolio. The easiest approach is to set an asset mix and sell whatever is above allocation for cash withdrawals or exchanges.
There's a particular problem with RIFs at very high mandated withdrawal rates in which sales will likely be necessary. When the withdrawal rate starts approaching 10% or more, extra planning is going to be needed.Straight from the source
IIRC, RIF withholding tax only applies to the amount, if any, withdrawn in excess of the mandated withdrawal. I.e., even if the minimum required withdrawal rate is high, there would be no withholding tax if you don't take out more than required.Shakespeare wrote:There's a particular problem with RIFs at very high mandated withdrawal rates in which sales will likely be necessary. When the withdrawal rate starts approaching 10% or more, extra planning is going to be needed.
Although equities can be swapped out, rather than sold, enough cash needs to be in the RRIF to pay the associated witholding tax.
At BNS, at least, it doesn't matter how your GIC ladder is structured or when the rungs mature. On the anniversary of the date you designate they'll redeem just enough of the lowest interest rate GIC(s) — regardless of maturity date — to fulfill your minimum annual withdrawal requirement. There's no charge or interest penalty for this so you can just keep rolling GICs as they mature.kcowan wrote:The RRIF withdrawal should be scheduled for December once it becomes mandatory. Then you have all year to make sure there is enough cash available, plus any gains during the year are protected. Then you can add it to the Fixed Income ladder that feeds her bank account for living expenses.
Yes but it only applies to Bank held RSPs. It does not usually extend to their discount broker or full service arm. Although in at least one bank it does at the discount broker with their own GIC's.At BNS, at least, it doesn't matter how your GIC ladder is structured or when the rungs mature. On the anniversary of the date you designate they'll redeem just enough of the lowest interest rate GIC(s) — regardless of maturity date — to fulfill your minimum annual withdrawal requirement. There's no charge or interest penalty for this so you can just keep rolling GICs as they mature.
Do the other banks provide similar flexibility?
Yes,What happens if my spouse should predecease me?Does the withdrawal formula continue as if he/she was still alive
and if the former and I inherit my spouses RRSP/RRIF can it be rolled into my RRIF and withdrawals continue to be based on my deceased spouses age were he/she still alive?
twa2w wrote:Yes,What happens if my spouse should predecease me?Does the withdrawal formula continue as if he/she was still alive
and if the former and I inherit my spouses RRSP/RRIF can it be rolled into my RRIF and withdrawals continue to be based on my deceased spouses age were he/she still alive?
yes - the money rolls into your plan and withdrawals on your plan continue on the basis your plan was set up under.
A RIF can be set up with a beneficiary in which case the funds can be rolled over into your RIF, ( your wife estate would be responsible for the minimum annual payment in year of death ) or it can be set up with a survivor annuitant in which case the RIF remains as is and you become the annuitant or recipient of the payments with no change in set up. Your wifes estate is only responsible for payments made to date of death and you would be responsible for payments after that date.
Cheers
J