Minimum RRIF Withdrawals & The Pension Income Tax Credit Explained

hi my name's adam welcome to the channel thanks for joining us in video two of our mini series on what happens to your rrsp in canada when you retire in this video we're going to talk about riff minimums as well as the pension income tax credit so we're going to cover up both of those topics in today's video in our mini-series if you haven't already subscribed to the channel make sure to do so hit the subscribe button below as well as the notification bell and you'll get a notification every single day this week when we post a new video and going forward every tuesday and friday we release a brand new video so two videos every single week on financial retirement estate and tax planning for canadians and as always if you have any comments or questions please put them below we'd love to you know communicate with you connect with you on this platform so if you have questions about you know converting to a riff or riff minimums or any of the pension income tax credit stuff that we talk about today leave a comment below leave a question below and we'll make sure to answer them personally for you so jumping into rift minimum so for a retirement income fund once you convert from an rrsp to a riff there's a minimum amount that you have to take every year and that depends on your age so depending on your age there's a percentage of the account value at the end of the previous year so december 31st that will determine the amount that you need to take out the following calendar year so again the percentage is based on your age and we'll put a link below so you can click on the link find your age and see the exact percentage that you're going to have to take out of your riff now remember that there's no riff maximum so only in a locked-in riff there would be a maximum cap but in a regular riff there's no maximum so you you know the minimum you have to take out and again there's no withholding tax if you remember from yesterday's video the minimum rift amount that you take out or have to take out no withholding tax anything above that there's going to be a withholding tax but remember your minimum rift amount is still taxable income to you so be prepared for that come tax time you may owe a bit of money in tax alternatively that minimum amount that there's no withholding tax you can request from your financial institution to have them withhold tax and we do recommend this you know anywhere from 10 to 20 percent is probably the ballpark for most canadians in retirement one other thing that we see people get caught up with rift minimums in retirement is when you have multiple rif accounts which you're allowed you can have you know rif account at a bank at a credit union at a independent financial advisor it doesn't matter you can have multiple rif accounts but the minimum is based on per account so if you have a hundred thousand dollars here and 100 here and 100 here and your minimum amount is let's say four percent so you have to take out 12 000 total you can't take it out of just one and leave the others you have to take out a minimum of four from each individual riff so keep that in mind that's why we always recommend you know as you get closer to retirement to start putting a plan in place and really consolidating your account so that when you retire it's a more streamlined income flow putting your assets together in one financial institution or you know under one investment firm isn't you know not diversifying you can have great diversification within one investment firm okay so you know it gets complicated when you have accounts everywhere so when you look at your rift minimums that you have to take out definitely having one rip account or maybe two at most is going to simplify your life a whole lot come retirement one other catch or tip when you convert your rrsp to a riff on the conversion form or on the application form for the riff it's going to ask you are you basing your riff minimums on your age or your spouse or common law partner's age okay so if your spouse or common-law partner is younger than you you can actually base your minimums off of their age so especially when you get a bit of an age gap five or ten years that can be beneficial because let's say you're 71 and you're forced to convert your rsp to a riff and your spouse is only 61 and you don't really need the rift income if you base it off of your spouse's age the required minimum is much lower than it would be for yourself so considering base your minimum off of your spouse's age if there's a bit of an age gap and especially if you don't need the taxable income and one last tip on rift minimums remember i mentioned in yesterday's video you don't have to convert all of your rsp to a riff at one time until you hit 71. so if you're 65 and you want to start drawing a bit of an income and you have half a million dollars in an rrsp you can move 50 000 100 000 whatever number you want to a riff to start drawing a bit of income out so remember it doesn't have to be the whole amount because you may not want to do the whole amount because your rift minimum might be higher than you want it may create a larger taxable income old-age security clawback a bunch of issues so you know make sure that if you need some income out of there but you don't want to you know drive the whole amount you can convert part of your rrsp to a riff to keep that minimum rift withdrawal a bit lower than it would be otherwise so the last thing here is the pension income tax credit so once you hit 65 you can have 2 000 of pensionable income to you can be can earn a tax credit so you can get about 15 back on a tax credit what this means is there's only certain types of income that qualify a rif is one of them so once you hit 65 if you have no pensionable income and again we'll put a link below on what qualifies for this pension income tax credit if you don't if you can't check off any of the other criteria then maybe your rrsp to a rift conversion makes the most sense and we've done this for clients where they don't need the income but they don't have any other income that qualifies for this tax credit so we convert two thousand dollars every year from their rrsp to a riff and then pull it out of the rift because rif income qualifies for this tax credit rrsp income does not qualify so if you're not getting that pension income tax credit from other income sources once you hit 65 make sure to convert at least two thousand dollars per person every single year to a riff and then withdraw it to get that pension income tax credit so that's one tax planning strategy that you and your spouse or comland partner can both do so again past 65 has to come out of a riff versus rsp if you pull money out of an rrsp it does not qualify for that pension income tax credit so again we'll put links below for both the rif minimums kind of a spreadsheet on that as well as the pension income tax credit and what qualifies for that tax credit again once you hit 65 you want to make sure that you have at least 2 000 dollars of income that qualifies under that tax credit to take advantage of that so thanks for joining us today hopefully i give you a bit of insight into the rift minimum and the pension income tax credit um again some of the tips and tricks that we give you make sure you implement those you might be leaving money on the table or paying too much in taxes so we want to you know reduce both of those as much as we can tomorrow we're going to talk about withholding taxes so where does withholding tax come in how does it work what does that all look like we'll do a full explainer video on that so again thanks for joining us today we hope you enjoyed the video if you do hit the thumbs up button it really does help with the youtube algorithm get our videos up to more canadians and as we know more canadians need to learn about proper retirement and tax planning and so we do two videos every single week on exactly that so hit the thumbs up get these videos out to more people we really do appreciate it thanks for joining us today we'll see you tomorrow

Channel: Parallel Wealth

Views: 31,651

Keywords: Financial Planning, Retirement Planning, Estate Planning, Retirement, Tax Planning, Investing, Real Estate Investing, Stocks, Bonds, Savings, Passive Income, RRSP, TFSA, Wealth, Parallel Wealth

Id: 8IGPmGgiCe4

Length: 7min 58sec (478 seconds)

Published: Tue Apr 20 2021