Most retirees believe to reasonably reduce the taxation to their retirement income they should choose to take the minimum amount from their RRIF. That being said, if you pass away before withdrawing all the funds from your RRIF, you ultimately forfeit most of your investment savings to taxation, which for most Canadians will be at the highest marginal tax rate of 53.5%. Unless you can transfer your registered investment portfolio to a surviving spouse or dependent child, you will not be sheltered from estate taxes that will be due immediately upon your death. We are continually inundated with the many ways to defer withdrawals from our RRIFs. Advisors encourage their clients to take the minimum required or suggest deferring withdrawals to a younger spouse. Another common suggestion is for the older spouse to withdraw from their RRIF while the younger spouse continues to contribute to a RRSP to get the tax credit. Obviously, these strategies leave more money invested in your RRIF resulting in the potential for more tax-sheltered growth, and a much larger portfolio.
It is necessary for clients to assess their investment situation annually and ensure they do not leave assets in their RRIF when they die. To lower annual taxation on withdrawals, those who are over 65 can split up to 50% of your RRIF income with a spouse and both will still be entitled to the $2,000 pension tax credit. If you withdraw more funds from your registered account than needed for daily living, you can easily transfer specific assets “in kind” to another investment account without the sale of the investment. This is very beneficial if your invested assets are in a fund that you favour and do not want to dissolve. Choose a TFSA or Non-Registered account to maintain your investment and continue growth. They say nothing is guaranteed more than “death and taxes” so let’s make sure we pay less taxes when the ultimate end comes around.