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| Adrian Mastracci, president
of KCM Wealth Management, says "Handling
the RRSP/RRIF combination is truly a marathon,
not a 100-yard dash. Especially as the RRSP/RRIF
vehicles span the investor's lifetime and,
perhaps, the spouse's lifetime." |
For Immediate Release
Vancouver, BC (October 28, 2002):
Successful navigation of the Registered Retirement
Saving Plan (RRSP) to the Registered Retirement
Income Plan (RRIF) transition takes much thought.
It should also be appropriate for the individual
circumstances.
Adrian Mastracci, investment
counsel & president of Vancouver's ‘fee-only’
KCM Wealth Management, comments,
“Handling the RRSP/RRIF is truly a marathon,
not a 100-yard dash. Especially as the RRSP/RRIF
combination spans the investor’s lifetime
and, perhaps, the spouse’s lifetime.”
“As an example, consider a couple where
the male is age 60 and the female is age 58”,
notes Mastracci, “They could easily be planning
for the next 25 to 30 years. Similarly, a male
age 50 and a female age 48 could be planning for
more than 35 years.”
“Therefore, the first question ought to
be: What is important about the RRSP/RRIF to you?”,
says Mastracci, “Then start planning the
transition with confidence.”
“Some say it is the preservation of the
nest egg, some emphasize growth of the portfolio,
while others say it is the income stream for a
comfortable retirement”, indicates Mastracci,
“Yet, for many it may be the major investment,
or perhaps the only form of pensionable asset
available.”
“Decisions surrounding the RRSP/RRIF combination
are extremely important,” points out Mastracci,
“Thus, the transition from an RRSP to a
RRIF requires skillful navigation for each situation.”
Mastracci outlines some considerations:
- As the names imply, RRSP’s are primarily
savings vehicles, whereas RRIF’s are income
withdrawal vehicles. No contributions are allowed
to a RRIF.
- The young men and women turning age 69 in
2002 must convert their RRSP not later than
December 31, 2002.
- RRSP planholders who are younger than 69,
and require income from the RRSP, will likely
experience more flexibility leaving the RRSP
intact and making withdrawals as and when required.
- The choices available at time of conversion
include cashing out the RRSP, a life annuity,
a term annuity to age 90, and a RRIF.
- The RRIF has risen to be the most popular
because it provides the highest level of flexibility.
- The eligible investments for a RRIF are the
same as the RRSP. Hence, investment strategy
need not change if it’s appropriate for
the income withdrawals.
- All minimum RRIF withdrawals are governed
by a formula and are fully taxable as regular
income. The first withdrawal commences in 2003
and if the recipient elects to receive it at
the end of the year, the plan would grow to
its maximum.
- Where the spouse is younger, there is an election
to receive the formula RRIF payments according
to the age of the younger spouse.
- All RRSP deposits must be made to the account
before conversion to a RRIF. Where applicable,
the RRSP deposit can be made to a younger spouse.
- Where there is no spouse, the planholder may
consider making the 2003 RRSP contribution before
converting the RRSP, face a penalty and claim
the RRSP deduction for tax purposes in the 2003
tax return.
- Designate the RRSP/RRIF plan beneficiary as
appropriate for the individual situation.
- If the planholder is over age 65 and does
not have an employer pension, the RRIF income
qualifies for the $1,000 pension income credit.
- RRIF withdrawals, in excess of the mandatory
annual minimum, can be made at any time. However,
be careful in a RRIF resulting from the conversion
of a spousal RRSP. The three-year attribution
rule still applies to withdrawals in excess
of the minimum.
“The primary advantage offered by the RRIF
is marvellous flexibility,” explains Mastracci,
“Each situation can be customized, year
after year.”
“Investors can choose the maximum level
of income withdrawn, the frequency of the withdrawals
and the plan’s investments,” concludes
Mastracci, “That’s what makes RRIF’s
so flexible as a planning vehicle.”
“Clearly, navigating the transition from
the RRSP to the RRIF is an important element of
maintaining financial security,” summarizes
Mastracci, “Paying special attention to
the available choices is a must.”
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