Should I draw down my RRIF to avoid estate taxes? + MORE Apr 25th

Here’s a round-up of news for Canadian investors this week.

Rogers

Teck Resources

Tesla

National Bank of Canada

Featured RRSP Accounts

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EQ Bank

Build your retirement savings with 2.00% interest, tax-deferred contributions and zero fees.

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Registered GIC rate

Earn a guaranteed 3.55% in your RRSP when you lock in for 1 year.

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Best RRSP rates

See our ranking of the best RRSP accounts and rates available in Canada.

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Life has been challenging for Cheryl (surname withheld for privacy) and her daughter Shannon. As a single parent with a low income, who struggled with a variety of health issues, Cheryl wasn’t able to save sufficiently for retirement. She worked a number of minimum wage jobs before suffering a workplace injury and being diagnosed with a degenerative condition. Now 60 years old and unable to work, Cheryl relies on the Ontario Disability Support Program (ODSP) and on financial help from Shannon, who’s 36 and the mother of a teenager. 

Shannon works full-time in a public sector role that offers benefits and a small pension, and her husband earns a decent living from his job. But thanks to Canada’s high cost of living and a recent string of unexpected expenses, the couple struggles to make ends meet—let alone save for retirement. “We have good educations and somewhat good jobs,” she says. “But at the end of the month, there’s not much left over.”

Canadians today are living longer than previous generations, and not everyone has the financial means to support themselves throughout retirement…

Ask MoneySense
Is it a good idea to withdraw more money monthly than one needs from one’s RRIF? What about beginning a regularly automated transfer of this extra money to one’s non-registered investments so that there is less money in the RRIF account upon death? As a result, the estate will be taxed less (by slowly moving it from the RRIF to the non-registered investments as one ages), instead of the RRIF portion of the estate being taxed at 50% upon death. Note that this person has contributed the maximum yearly amount into their TFSA so there is no room left there.

—Andrea

Drawing down RRIF and estate taxes

Hey Andrea, this is a good question. In most cases I would say no. It’s not a good idea to draw extra money from your registered retirement income fund (RRIF) and invest it in a non-registered account just to pay less tax in your estate, unless your goal is to pay less tax. That may sound like a contradiction, but I’ll explain that.  

Before I give you my thoughts, I have to ask: What is your real goal? Is it to have your estate pay less tax, or is it to maximize the amount of wealth you leave to your beneficiaries? If you want to minimize tax in the estate, you could leave it to charity or spend and/or give it away before you die…