When you are retired, you will have the choice of drawing from a number of different registered and non-registered accounts. You may choose to withdraw from your Registered Retirement Income Fund (RRIF), Tax-Free Savings Account (TFSA) or your non-registered accounts. Choosing which account to withdraw from first may seem like an easy decision, but there are a number of things you need to consider.
Which should you choose?
Conventional wisdom would dictate that you should draw from the TFSA first, followed by your non-registered accounts since they are the least-taxed sources. If you followed this practice, you would be living on these funds while only making the minimum withdrawal from your RRIF every tax year. This does make sense from a tax perspective (and will help you save money in the short-term) but there are also some tax implications to consider for your estate.
Estate Considerations
After you pass away, your Registered Retirement Income Fund assets will be taxable as income on your final tax return. If you have sizeable RRIF assets remaining, your money will be subject to the highest tax rate, which can range between 40 to 55 percent depending on where you live. Subjecting your assets to the highest tax rate can be avoided though. If your RRIF assets are received by your surviving spouse, they won’t be taxable on your final return. You can also avoid these taxes by taking a different approach to your retirement withdrawals.
Withdraw more than the Minimum
During your retirement, you should consider withdrawing more than the minimum from your RRIF, even if you don’t plan on spending it all. These withdrawals will be taxable, along with being subject to withholding tax, but the rate will most likely be lower than the final rate on your last tax return. You can then contribute some of the withdrawals to your or your spouse’s TFSA (if you have contribution room) so that all future income generated will be tax-free. You could also add them to one of your or your spouse’s non-registered accounts.
If you need help getting a handle on your retirement planning, the retirement planning advisors at The Beacon Group of Assante Financial Management Ltd. are here to help. They will guide you towards a prosperous retirement by helping you with the decisions that will benefit you both today and tomorrow.
