As we enter the final months of the year, this is often a time when retirees take their Registered Retirement Income Fund (RRIF) required withdrawals. Don’t forget that an “in-kind withdrawal (transfer)” can satisfy part or all of the requirement; securities do not have to be sold.

An in-kind withdrawal involves transferring investments directly to a non-registered account or Tax-Free Savings Account (TFSA). There may be associated benefits: You will maintain ownership of the shares and it may minimize trading costs. An in-kind withdrawal from the RRIF to a TFSA, subject to available TFSA contribution room, could also allow for the future tax-free growth of the securities transferred.

For an in-kind withdrawal from the RRIF, the fair market value (FMV) of the shares at the time of transfer will be added to your taxable income and their cost base will be adjusted. For example, an in-kind withdrawal of 100 shares of XYZ stock trading at $60 will be valued at $6,000 (the FMV of the shares). This amount will be added to your taxable income. The adjusted cost base (ACB) of the transferred shares will now become $6,000, regardless of the price paid when originally acquired. If the transfer is to a non-registered account, the ACB will be used when the shares are eventually sold to calculate the capital gain/loss. Keep in mind that if the transfer value is greater than the RRIF minimum withdrawal requirement, the excess amount will be subject to withholding tax.

Still Have Yet to Open the RRIF? Consider Planning Ahead.

If you still have yet to open the RRIF, planning ahead is always recommended. Here are four practices that may require forethought.

1. Opening a small RRIF before the age of 71. The pension income tax credit generally begins at age 65, so this may be one way to take advantage of this non-refundable credit. You may also be able to split pension income with a spouse/ partner, which can reduce taxes or improve access to income-tested government benefits.

2. Using a younger spouse’s age to determine the RRIF minimum withdrawal rate. A younger spouse’s age can minimize withdrawal amounts and maximize flexibility since you can always withdraw more than the required minimum if you need it (subject to withholding tax). However, you must elect to use a spouse’s age when first setting up the RRIF, and this cannot be changed at a later time.

3. Making withdrawals closer to year end to allow greater potential tax-deferred compounding. Remember: for those who convert the RRSP to the RRIF at age 71, mandatory withdrawals aren’t required until the year after the plan is opened.

4. Varying RRIF withdrawals with your tax bracket. For years in which you will be in a lower income tax bracket, consider the opportunity to make greater withdrawals than the minimum requirement to take advantage of the lower tax rate (subject to withholding tax).

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