Last updated: May 05 2015
The recent April 21 Federal Budget introduced relaxed rules for mandatory withdrawals from a RRIF, effective in the 2015 and subsequent tax years.
To read Part 1 of this story, click here.
The factor used to calculate mandatory withdrawals from a RRIF (multiplying it by the value of assets in the RRIF) has been reduced to help Canadians preserve capital throughout retirement, taking into consideration increasing longevity and lower expected rates of return and inflation, based on recent long-term historical data.
Canadians are currently required to withdraw a minimum of 7.38 percent of their RRIF starting at age 71, with the minimum rising each year until it is capped at 20 percent at age 94 and beyond. Under the new rules to take effect for the 2015 tax year, the minimum withdrawal is reduced to 5.28 percent at age 71, increases annually to 18.79 percent at age 94, and will now be capped at 20 percent at age 95 and beyond.
Other rules to note in approaching the subject with pre-retirees include the following:
Example: New RRIF Rules
Danielle turned 65 in 2015. In order to take advantage of the $2,000 pension income amount in 2015, late in the year she transferred $200,000 from her RRSP to a RRIF. In 2015 there was no minimum withdrawal so she withdrew $2,000. Assuming income of 4% annually earned in her RRIF and that she makes only the minimum withdrawals in future years, here's how her RRIF balance and withdrawals will look under the new rules:
Year | Age | Beginning Balance | Earnings | Withdrawals | Ending Balance |
2015 | 65 | $ 200,000 | $ 2,000 | $ 198,000 | |
2016 | 66 | $ 198,000 | $ 7,920 | $ 8,250 | $ 197,670 |
2017 | 67 | $ 197,670 | $ 7,907 | $ 8,594 | $ 196,982 |
2018 | 68 | $ 196,982 | $ 7,879 | $ 8,954 | $ 195,908 |
2019 | 69 | $ 195,908 | $ 7,836 | $ 9,329 | $ 194,415 |
2020 | 70 | $ 194,415 | $ 7,777 | $ 9,721 | $ 192,471 |
2021 | 71 | $ 192,471 | $ 7,699 | $ 10,124 | $ 190,046 |
2022 | 72 | $ 190,046 | $ 7,602 | $ 10,262 | $ 187,385 |
2023 | 73 | $ 187,385 | $ 7,495 | $ 10,362 | $ 184,518 |
2024 | 74 | $ 184,518 | $ 7,381 | $ 10,462 | $ 181,437 |
2025 | 75 | $ 181,437 | $ 7,257 | $ 10,560 | $ 178,135 |
2026 | 76 | $ 178,135 | $ 7,125 | $ 10,652 | $ 174,608 |
2027 | 77 | $ 174,608 | $ 6,984 | $ 10,773 | $ 170,819 |
2028 | 78 | $ 170,819 | $ 6,833 | $ 10,864 | $ 166,787 |
2029 | 79 | $ 166,787 | $ 6,671 | $ 10,975 | $ 162,484 |
2030 | 80 | $ 162,484 | $ 6,499 | $ 11,081 | $ 157,902 |
2031 | 81 | $ 157,902 | $ 6,316 | $ 11,179 | $ 153,039 |
2032 | 82 | $ 153,039 | $ 6,122 | $ 11,294 | $ 147,866 |
2033 | 83 | $ 147,866 | $ 5,915 | $ 11,400 | $ 142,380 |
2034 | 84 | $ 142,380 | $ 5,695 | $ 11,504 | $ 136,571 |
2035 | 85 | $ 136,571 | $ 5,463 | $ 11,622 | $ 130,412 |
2036 | 86 | $ 130,412 | $ 5,216 | $ 11,724 | $ 123,904 |
2037 | 87 | $ 123,904 | $ 4,956 | $ 11,833 | $ 117,028 |
2038 | 88 | $ 117,028 | $ 4,681 | $ 11,949 | $ 109,760 |
2039 | 89 | $ 109,760 | $ 4,390 | $ 12,063 | $ 102,088 |
2040 | 90 | $ 102,088 | $ 4,084 | $ 12,169 | $ 94,003 |
2041 | 91 | $ 94,003 | $ 3,760 | $ 12,264 | $ 85,499 |
2042 | 92 | $ 85,499 | $ 3,420 | $ 12,389 | $ 76,530 |
2043 | 93 | $ 76,530 | $ 3,061 | $ 12,505 | $ 67,086 |
2044 | 94 | $ 67,086 | $ 2,683 | $ 12,002 | $ 57,768 |
2045 | 95 | $ 57,768 | $ 2,311 | $ 10,335 | $ 49,744 |
2046 | 96 | $ 49,744 | $ 1,990 | $ 8,899 | $ 42,835 |
2047 | 97 | $ 42,835 | $ 1,713 | $ 7,663 | $ 36,885 |
2048 | 98 | $ 36,885 | $ 1,475 | $ 6,599 | $ 31,762 |
2049 | 99 | $ 31,762 | $ 1,270 | $ 5,682 | $ 27,350 |
2050 | 100 | $ 27,350 | $ 1,094 | $ 4,893 | $ 23,551 |
To compute the effect of RRIF planning on taxable income, Knowledge Bureau has developed two specific tax calcuators to help: the Income Tax Estimator and the Tax Efficient Retirement Income Calculator, available at a 15% discount throughout the month of May.
Next time: The Effect of New RRIF Rules on Pension Income Splitting