To help weather the economic challenges of the COVID-19 pandemic, the Government of Canada is giving Canadian seniors the option to lower the minimum amount they are required to withdraw from their Registered Retirement Income Funds (RRIFs) this year by 25 per cent.
The reduction recognizes recent volatility in global financial markets caused by the health crisis, which in turn may be impacting many seniors’ retirement savings. It’s meant to help investors avoid selling assets unnecessarily when market conditions are not ideal.
“This will provide flexibility to seniors that are concerned that they may be required to liquidate their RRIF assets to meet minimum withdrawal requirements,” the government announced.
The 25 per cent reduction means that if your minimum withdrawal amount this year was $10,000, the reduced amount would be $7,500. For RRIF accounts opened as of Dec. 31, 2019, your minimum withdrawal amount for calendar 2020 would have been provided to you. The 25 per cent reduction applies to that original minimum amount.
To determine what the change means for you, here are seven common questions about the government’s RRIF relief measure.
1) Will the reduction apply to future years?
The 25 per cent reduction is a temporary measure for 2020 only. The regular RRIF withdrawal factors will apply again beginning in 2021.
2) I already withdrew my original minimum requirement for 2020. Can I re-contribute?
Unlike when the government made a similar move during the 2008 financial crisis, if you withdrew more than the reduced minimum before the March 18 announcement, re-contributing the difference between the original minimum and the reduced minimum is not permitted.
3) Am I required to lower my minimum withdrawal?
No. Reducing your minimum withdrawal by up to 25 per cent is optional. The change allows RRIF holders (annuitants) who don’t want to take their full original minimum to keep the extra funds invested on a tax-deferred basis.
4) Does the change apply to Life Income Funds (LIFs) and other locked-in RRIFs?
The temporary change for 2020 applies to all types of RRIFs, including LIFs and other locked-in RRIFs.
5) What about withholding taxes for Canadian residents?
Under the temporary provisions, withholding taxes – basically a pre-payment of your income tax – are calculated based on your unreduced minimum amount. (Withholding taxes normally apply to withdrawals of cash and/or in-kind securities that exceed your annual minimum amount.)
6) How does the change affect income attribution to my spouse?
For Spousal RRIFs, the original unreduced minimum will continue to be used when deciding who will pay the tax on the withdrawal. This avoids unfairly increasing the amount attributed back to the contributor.
7) How do I request a change?
If you haven’t already received an amount up to your reduced RRIF minimum withdrawal and want to make a change, you can send instructions through a secure message by logging into your account online or call and speak with a representative directly.* Requests for the reduction must be made by Dec. 31, 2020 – or before your minimum withdrawal is scheduled.
Find out more about RRIFs in 5 Things to Know About RRIF Withdrawals.
Note: this article was first posted by RBC Direct Investing in Inspired Investor. You can find more information about Smart Investing on the Inspired Investor Page.