RRSP to RRIF - Questions

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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Norbert Schlenker
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Post by Norbert Schlenker »

I'm sorry but you're wasting your time.

If you're 65 or over, payments out of either an RRSP or a RRIF are eligible for the pension credit. If you're under 65, payments out of either are ineligible.

The only way to get a pension credit before age 65 is if you're actually being paid a pension by a private pension plan.
I'll be nice to save 2k a yr. especially from the tax man :twisted:
You're not going to save 2k. The credit is federal only and is worth about $300. The amount eligible for the credit in many provinces was not increased from the old 1k when the feds bumped, so that's worth maybe $60.

[Added later: dakota is in Ontario, so the provincial credit is 6.05% of $1158, about $70.]
Last edited by Norbert Schlenker on 18 Oct 2007 14:23, edited 1 time in total.
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Post by dakota »

If you're 65 or over, payments out of either an RRSP or a RRIF are eligible for the pension credit. If you're under 65, payments out of either are ineligible.
I'm lost now...the accountant said the the $2000 credit he was talking about did not apply to RRSP only to a RRIF :?
Last edited by dakota on 18 Oct 2007 15:00, edited 1 time in total.
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Post by Norbert Schlenker »

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dakota
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Post by dakota »

Norbert Schlenker wrote:http://www.cra-arc.gc.ca/tax/individual ... ble-e.html

You may need a better accountant.
No my accountant made sure I got it but I got this from an accountant on Talking Tax this morning and I thought this might be an additional credit just for RRIFs
Last edited by dakota on 18 Oct 2007 15:01, edited 1 time in total.
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Post by steves »

riff: a repeated chord progression, pattern, refrain or melodic figure, often played by the rhythm section instruments,

rrif: a riff played on the bagpipes
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Post by dakota »

steves wrote:riff: a repeated chord progression, pattern, refrain or melodic figure, often played by the rhythm section instruments,

rrif: a riff played on the bagpipes
Go to hell
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Post by banker »

Lol. I bet someone on BNN is in trouble today!

Btw, out of curiosity..what did you think riff stands for :D
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Post by dakota »

banker wrote:Lol. I bet someone on BNN is in trouble today!

Btw, out of curiosity..what did you think riff stands for :D
Everone fucking happy now??? :roll:
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Post by DavidR »

dakota wrote: I'm lost now...the accountant said the the $2000 credit he was talking about did not apply to RRSP only to a RRIF :?
Perhaps he meant that Pension splitting does not apply to 'lump sum withdrawals' from an RRSP. (Yes for 'annuity payments' from an RRSP, but not for lump sums.) So those who don't want to annuitize should convert part (or all) of the RRSP to a RRIF.
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Post by blonde »

dakota,...er, ah, Don't Trust Anyone.

Look After #1.

BTW, trust me, believe me.
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Post by dakota »

You gave me the first laugh since I posted this blonde Thanks :)

I listened to the program again and I made a mistake...I just heard the last part of it and the accountant said what I said he said, but just before that he mentioned that other pension income would qualify for the credit as well. If anyone wants to listen to the broadcast here is the link...

http://www.bnn.ca/

Scroll down to Todays Videos and select Talking Tax
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Post by brucecohen »

DavidR wrote:Perhaps he meant that Pension splitting does not apply to 'lump sum withdrawals' from an RRSP. (Yes for 'annuity payments' from an RRSP, but not for lump sums.) So those who don't want to annuitize should convert part (or all) of the RRSP to a RRIF.
I'm sure that's what he was talking about. The $2,000 would refer to the pension tax credit.

Suppose your spouse has no Registered Pension Plan or RRIF income that qualifies for the $2,000 pension tax credit. If you're over 65, you could withdraw $4,000 from a RRIF and allocate half of that to your spouse, creating an entitlement to the pension credit. Half the RRIF withdrawal would be taxed in your hands and half in your spouse's.

As David noted, this applies only to withdrawals from a RRIF -- not from an RRSP.

BTW, those who invest in GICs should note that interest from a GIA -- the life insurance version of a GIC -- is technically considered annuity income and thus qualifies for both pension splitting and the $2,000 pension credit.
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Post by dakota »

BTW Norbert...Thanks for setting me straight :)
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Post by DavidR »

brucecohen wrote:BTW, those who invest in GICs should note that interest from a GIA -- the life insurance version of a GIC -- is technically considered annuity income and thus qualifies for both pension splitting and the $2,000 pension credit.
Thanks Bruce. That's interesting... (Now if only I was 65!)
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Post by dakota »

brucecohen wrote:
DavidR wrote:Perhaps he meant that Pension splitting does not apply to 'lump sum withdrawals' from an RRSP. (Yes for 'annuity payments' from an RRSP, but not for lump sums.) So those who don't want to annuitize should convert part (or all) of the RRSP to a RRIF.
I'm sure that's what he was talking about. The $2,000 would refer to the pension tax credit.

Suppose your spouse has no Registered Pension Plan or RRIF income that qualifies for the $2,000 pension tax credit. If you're over 65, you could withdraw $4,000 from a RRIF and allocate half of that to your spouse, creating an entitlement to the pension credit. Half the RRIF withdrawal would be taxed in your hands and half in your spouse's.

As David noted, this applies only to withdrawals from a RRIF -- not from an RRSP.

BTW, those who invest in GICs should note that interest from a GIA -- the life insurance version of a GIC -- is technically considered annuity income and thus qualifies for both pension splitting and the $2,000 pension credit.
No bruce...he was not talking about income splitting at all... the caller said he turned 65 this year and if he changed his RRSP into a RRIF would it qualify for the credit. But you can listen to the broadcast yourself the link is a few posts before this one
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Post by arthur »

I'm confused, but sine 65 is a Looong way away for me, I won't worry. 8)
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Post by steves »

It's not that far away for me. Mind you, it's getter farther away every year.
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Post by Norbert Schlenker »

brucecohen wrote:As David noted, this applies only to withdrawals from a RRIF -- not from an RRSP.
AFAIK this is wrong. If you're over 65, an RRSP withdrawal is eligible for the pension income credit. See the link in my post above or follow the bouncing ball from http://www.cra-arc.gc.ca/tax/individual ... qa3-e.html
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Post by brucecohen »

Norbert Schlenker wrote:
brucecohen wrote:As David noted, this applies only to withdrawals from a RRIF -- not from an RRSP.
AFAIK this is wrong. If you're over 65, an RRSP withdrawal is eligible for the pension income credit. See the link in my post above or follow the bouncing ball from http://www.cra-arc.gc.ca/tax/individual ... qa3-e.html
Yes, but it's not eligible for the new pension splitting provision.
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Post by DavidR »

Norbert Schlenker wrote:
brucecohen wrote:As David noted, this applies only to withdrawals from a RRIF -- not from an RRSP.
AFAIK this is wrong. If you're over 65, an RRSP withdrawal is eligible for the pension income credit. See the link in my post above or follow the bouncing ball from http://www.cra-arc.gc.ca/tax/individual ... qa3-e.html
According to your link RRSP income from Box 16 of a T4RSP is eligible.
Box 16 = Annuity payments.

Lump sums are Box 22. Not eligible for pension splitting.
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Post by Norbert Schlenker »

dakota, I'm very sorry.

I

WAS

WRONG

!!!!!!!

Bruce and David are right. The financial institution will code a withdrawal from an RRSP into box 22 of a T4RSP, which will make it ineligible for the pension credit.

If you either annuitize or RRIF enough of the RRSP to generate $2000 a year (and you are at least 65 and have no other private pension income), it will be coded as income eligible for the pension credit. IOW it's worthwhile. It's free money, worth $375 in saved taxes in Ontario. Double if you do it twice as big and split it with your spouse, as long as she is also over 65, as Bruce suggested.

:oops: :oops: :oops: :oops:
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Post by mayday »

For those, under or over 65 years of age, who have a spouse with "qualifying income" (including a spouse under 65 years of age with a pension from a registered pension plan), you can split the pension income and double up on the pension income credit.

http://www.fin.gc.ca/pensioncalc/factsheet_e.html


Pension income splitting.
Many Canadians face challenges in planning and managing their retirement income. Coupled with the desire to provide targeted assistance to pensioners, beginning for the 2007 taxation year, Canadian residents who receive income that qualifies for the existing pension income tax credit will be permitted to allocate to their resident spouse (or common-law partner) up to one-half of that income.

How it will work
For income tax purposes, the amount allocated will be deducted in determining the income of the person who actually received the pension income and included in computing the income of the person to whom some or all of the pension income is allocated. Since it will in many cases increase the transferee’s tax payable, both persons must agree to the allocation in their tax returns for the year in question.

The pension income that is allocated will retain its character and be treated as income of the lower-income spouse for all purposes under federal income tax rules. This means that some couples may now receive a second pension income tax credit where previously only one was available. In addition, splitting pension income could mean higher Old Age Security entitlements for some couples.

Eligible pension income

For individuals aged 65 years and over, the major types of qualifying income that can be allocated to a spouse or common law partner are:

a pension from a registered pension plan (RPP) ;
income from a registered retirement savings plan (RRSP) annuity; and
payments out of or under a registered retirement income fund.
For individuals under 65 years of age, the major type of qualifying income that can be allocated to a spouse or common law partner is income from a pension from a registered pension plan.
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Post by Springbok »

Norbert Schlenker wrote:http://www.cra-arc.gc.ca/tax/individual ... ble-e.html

You may need a better accountant.
The BNN "accountant" was Tim Cestnick.

I would believe what HE says!!!!

Most of us retirees are well aware of this credit. the credit was increased from $1000 to $2000 in the last budget, or was it the one before.

It is not an additional credit. It is just the Pension Income Credit. Nothing new, we have been doing it for years.
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Post by izzy »

DavidR wrote:
brucecohen wrote:BTW, those who invest in GICs should note that interest from a GIA -- the life insurance version of a GIC -- is technically considered annuity income and thus qualifies for both pension splitting and the $2,000 pension credit.
Thanks Bruce. That's interesting... (Now if only I was 65!)

Unfortunately GIAs seem to pay a lower interest rate than the best available GICs which tends to ,at least partially,negate the tax benefit.
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Post by kcowan »

A related consideration is that the age deduction of $5066 federal (plus provincial) is subject to clawbacks above an income of about $30k so your RRIF withdrawal may contribute to that clawback. Totally gone by income of $56K BC (57.7 ON, 58.6 AB). These change slightly every year.
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