Transferring RRSPS to RIFs for Canadians.

Its tax time and the weather is gloomy so lets do our financial planning.

RRSPs must be converted to a RIF by December in the year you turn 71. I describe the process I to make this happen. I’m not a financial professional so don’t take my experience as advice. Here is a summary of the process.

Step 1 Contact your bank to set up an RIF and request they transfer assets from RRSP to RIF

Step 2. Find out from the bank how much you must withdraw each year and how much additional money you can withdraw and how often.

Step 3 Find out from the bank when and how the withdrawals will occur.

Step 4. Calculate the amount you will get, how much gets deducted in taxes and what impact it will have on your income.

Registered Retirement Savings Plans transfer to RIF

I found the process to set up the account and organize the withdrawals to be quite confusing. This process took a lot of time and effort. The forms have a lot of details about rules and regulations and request a lot of information about your finances. It might be different for you depending on which bank holds your RRSP.

My bank has the forms posted online. I tried to fill out the forms online, print them out, scan them in and upload them, but the files were too big to upload to the bank’s system. So, I mailed the to Head Office in Toronto. I then went through multiple phone calls to the bank as found they had not set up the account. Finally, the account was set up and the bank transferred my assets from the RRSP to a RIF. Several months later the bank sent the forms to me in the mail. So, it appears you don’t need to be proactive, you can wait for the bank to contact you.

I was offered monthly/quarterly/semi-annual/annual options for the minimum withdrawal on the 10th or 24th of the month.

Minimum annual withdrawal from RIF

Once you have transferred your assets from the RRSP to a RIF, you must set up a minimum withdrawal. Income tax is not deducted from this minimum amount. You can transfer mutual funds or stocks to a TFSA or you can transfer out cash to a checking account or TFSA. The bank will automatically transfer cash from the RIF to your checking account or TFSA on the dates you have specified in your application. However, if you want to transfer stocks or mutual funds from your RIF to a TFSA you must call the bank before the withdrawal date to put in a request for a transfer of assets.

Transfers of amounts above the minimum payment.

If you withdraw more than the minimum amount you must pay a withholding tax. You could withdraw the full amount if it were not for tax implications.
10% on amounts up to $5,000
20% on amounts over $5,00
30% on amounts over $15,000

Oddly enough, the first year you withdraw or transfer assets from an RIF, you have to pay withholding tax on the whole amount you withdraw including the minimum amount, according to the Bank of Montreal as of April 4 2022.

There are a lot of different scenarios regarding the withdrawals and research is necessary to determine what is the best scenario for you.

Example

Let’s say your minimum amount you can withdraw is $10,000 and you want to withdraw an additional $30,000. I call the bank a week before the minimum withdrawal, they tell me how much my minimum withdrawal is, I tell them what mutual fund I want to transfer to my RRSP, and they execute the transfer. Then I tell them how much more I want to transfer above the $10,000. They tell me how much withholding tax there will be which would be approximately $9,000 (30% of $ 30,000). I cash in some mutual funds to fund the tax withholding. Then I call the bank back to execute the transfer of the mutual funds to my RRSP. Then I am done for the year.

Transfer of LIRA to LIF

The LIRA is different from the RRSP/RIF in that the funds are locked in. The transfer process is similar to an RRSP to a RIF. There is a similar complex application process as discussed above. However, the withdrawal rules are different. There is a min/max annual withdrawal only, unless you have extreme hardship or shortened life expectancy. The bank is required to give you a statement in writing of the amount that is to be paid out each year. This appears on the statement I receive from the bank at the end of the year. One can start withdrawals after age 55 and it would be wise to do this.

https://www.bmoinvestorline.com/selfDirected/pdfs/BritishColumbia_LIRA.pdf

https://www.bmoinvestorline.com/selfDirected/pdfs/BritishColumbia_LIF.pdf

The withdrawal min and max are calculated on the website below. The calculations for a 72-year-old person in 2022 were 5.4 % min and 8.71% Maximum.

https://lifeannuities.com/articles/2021/2021-lif-withdrawal-rates.html

When the balance is less than 40% of the YMPC (64,900 x 40%=25,960) you can withdraw the balance.

if you will earn less than $43,267 before taxes in the next 12 months, you are eligible to make small additional withdrawals. https://www.bcfsa.ca/media/1637/download

Other online resources about LIRAs/LIFS

https://www.bcfsa.ca/public-resources/pensions/liras-and-lifs

https://mpp.pensionsbc.ca/what-is-the-years-maximum-pensionable-earnings

There is a free booklet that has been posted by an investment company with more details about LIFs.

https://lifeannuities.com/2022-LIF-Withdrawal-Rules-Tables.pdf

Old age security claw back

Be careful about withdrawals because they are treated as income and can result in your income exceeding $75,000 at which point the OAS is clawed back at an increasing percent as your total income increases.

Lessons from my experiences.

  1. Do your research before you start the process
  2. Give yourself several months to sort this out.
  3. Call your bank to walk you through the process.
  4. Ensure you understand the process.
  5. Ask a lot of questions if you don’t understand anything
  6. Take notes on what you do.
  7. The online websites are not very clear
  8. Try to transfer assets without cashing them out.
  9. Do your income tax for the next year using tax software using different amounts of withdrawals.
  10. Consider using a financial planner because there are a lot of details that I haven’t included here.

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