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| Adrian Mastracci, president of KCM Wealth Management, says "The assortment of individual needs means that the RRSP to RRIF roadway requires a personal map for each situation. Particularly for professionals and self-employed who don’t have employer pension plans." |
For Immediate Release
Vancouver, BC (November 7, 2005): The venerable RRSP and RRIF remain very prominent retirement planning vehicles. They’ve become the foundation of many investment portfolios.
Warren Buffett once said, “In the business world, the rearview mirror is always clearer than the windshield”.
Adrian Mastracci, “fee-only” investment counsel at Vancouver based KCM Wealth Management, comments, “Someone who starts an RRSP at age 30 could be planning for the next 50 to 60 years. A lot of looking ahead through the windshield and, preferably, none in the rearview mirror.”
That's one good reason to be aware of the RRSP and RRIF details. Even if it's too early to implement them.
RRSPs are primarily saving plans, whereas RRIFs are income withdrawal plans. No contributions are allowed to be made into a RRIF.
The vital question is what’s important about the RRSP and RRIF. That perspective guides the path that makes sense for the individual situation.
Many investors focus on capital preservation, both before and after retirement. Some emphasize portfolio growth. Others concentrate on sustaining retirement income streams.
The assortment of individual needs means that the RRSP to RRIF roadway requires a personal map for each situation. Particularly for professionals and self-employed who don’t have employer pension plans.
The preferred strategy is to integrate the RRSP/RRIF into the overall investment plan. A diversified plan with the appropriate asset mix and tolerance for risk.
RRSP Tips
The 2005 RRSP deposit is 18% of your 2004 earned income, to a maximum of $16,500. It is reduced by your pension adjustment. Past service contributions may also affect it.
The maximum 2005 RRSP entitlement is reached with 2004 earned income of $91,600. RRSP deposits must be made by March 1, 2006 to be deducted in your 2005 tax filing.
Once the RRSP deposit is made, the tax department can advise the employer to deduct less income tax at source. In effect, getting the tax rebate early.
Unused RRSP contribution room accumulates from previous years. Consult your 2004 Tax Notice of Assessment for the total RRSP entitlement. A $2,000 lifetime overcontribution is also allowed as part of your RRSP deposit, but is not included in your tax notice.
RRSP deposits can be made to your account, the spousal account, or both. A family could make all RRSP deposits to one spouse, and later switch. Spouses include common law partners.
RRSP contributions can be made in cash or with other qualified investments. However, review the tax implications of contributing existing investments. Contributions in excess of the allowable amounts attract a penalty of 1% per month.
The 30% foreign content limit is now gone. The RSP clone funds are being done away with. If the existing asset mix targets are appropriate, there should be no reason to change them.
RRIF Tips
Investors who turn 69 during 2005 must convert their RRSP by December 31, 2005.
Younger investors, who may require income from the RRSP, are better off not converting the RRSP until age 69. RRSP withdrawals can be made as and when required until then.
All RRSP deposits must be made before conversion to a RRIF. Where applicable, the RRSP deposit can be made to the younger spouse.
If there is no spouse, the planholder may make the 2006 RRSP contribution before converting the RRSP in 2005. A penalty applies and the RRSP deduction is claimed in the 2006 tax return.
The conversion choices include cashing out the RRSP, a variety of annuities and the venerable RRIF. The RRIF is most popular because it provides considerable flexibility.
Eligible investments for the RRSP and RRIF are the same. Hence, investment strategy need not change if it accommodates the periodic withdrawals.
Minimum RRIF withdrawals are governed by a formula as shown in the table provided below. They are taxable as regular income.
RRIF withdrawals commence in 2006 for those who convert the RRSP in 2005. There is an election to receive the minimum RRIF payments based on the age of the younger spouse.
RRIF income qualifies for the $1,000 pension income credit for investors age 65 or older.
Voluntary RRIF withdrawals, in excess of minimums, can be made any time. However, if the RRIF resulted from the conversion of a spousal RRSP, the three-year attribution rule still applies to RRIF withdrawals that exceed the minimums.
The fundamental advantage offered by the RRIF is significant flexibility. Each investor situation can be customized, year after year.
Investors can choose the amounts withdrawn above the minimums, the frequency of the withdrawals and the plan's investments. That's what makes the RRIF so flexible.
An investor may have more than one RRSP and RRIF. Of course, designate the appropriate beneficiary for each plan, such as the spouse and children.
Upon the death of the planholder, RRSP/RRIF accounts can be passed onto the surviving spouse. Ultimately, to other beneficiaries named in the will. Hence, the value can benefit family members as part of the estate.
Stickhandling the RRSP and RRIF paths are important pages of retirement and investment planning. Paying special attention to details, vis-a-vis one's goals, is a valuable exercise.
Minimum RRIF Withdrawals
| Your Age |
Minimum Withdrawal |
Your Age |
Minimum Withdrawal |
| 70 |
5.00% |
83 |
9.58% |
| 71 |
7.38% |
84 |
9.93% |
| 72 |
7.48% |
85 |
10.33% |
| 73 |
7.59% |
86 |
10.79% |
| 74 |
7.71% |
87 |
11.33% |
| 75 |
7.85% |
88 |
11.96% |
| 76 |
7.99% |
89 |
12.71% |
| 77 |
8.15% |
90 |
13.62% |
| 78 |
8.33% |
91 |
14.73% |
| 79 |
8.53% |
92 |
16.12% |
| 80 |
8.75% |
93 |
17.92% |
| 81 |
8.99% |
94 & older |
20.00% |
| 82 |
9.27% |
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