Ron Cannan, Member of Parliament for Kelowna-Lake Country feels seniors need to be aware of important information about the requirement to turn RRSPs into RRIFs in the year they turn 72.
“Many seniors are understandably worried about their retirement portfolio considering the recent volatility in the stock market. Some seniors are concerned about losing money if, to satisfy their RRIF minimum withdrawal, they are required to liquidate their RRIF assets,” he said.
“What seniors need to know is the tax rules do not require individuals to sell assets in order to meet the RRIF minimum withdrawal requirements. Such assets may be withdrawn from a RRIF without being sold. In other words, a senior who doesn’t want to liquidate stocks that have decreased in value in recent weeks can withdraw them in their existing form, rather than converting them to cash before making the withdrawal,” said Mr. Cannan.
Cannan said this means if a senior’s required minimum withdrawal from their RRIF is $1000, they may withdraw 100 shares (worth $10 each) held within their RRIF. If they do not want to sell those shares because their current value is lower than when they bought them, the tax rules do not require them to do so. Instead, the shares can be withdrawn directly, and can be held outside of their RRIF – tax rules do not require the shares to be converted to cash at a loss. RRIF withdrawals are taxable since a tax deduction was provided when the money was contributed to a registered retirement savings vehicle. Therefore, the senior would still be required to pay tax on the $1000 withdrawal from their RRIF.
Cannan also noted that, starting in 2009, seniors will also be able to transfer RRIF withdrawals into the new Tax Free Savings Account (TFSA).
“The TFSA is a perfect savings vehicle for this purpose because it allows you to deposit up to $5,000 into the account with all investment income, including capital gains, growing tax free, including upon withdrawal,” he said. “Any unused contribution room will be carried forward to future years and if a withdrawal is made the amount will be added to the contribution room of the following year.”
Many financial institutions are already allowing clients to make early contributions to an account which will be converted to a TFSA on January 1, 2009.
Mr. Cannan said that the issue was raised in the House of Commons this week and that Finance Minister Flaherty had expressed concern that seniors were not being properly informed by their financial institutions of the option.
Minister Flaherty said: “One specific concern that has been raised is the obligation that people have to move money from RRSPs to RRIFs at age 71. We moved the age from 69 to 71. It is true that the transfer can be made in kind. One does not have to sell the asset. However, it is also true that some of our financial institutions have not been making that crystal clear to their customers. I am writing to them today asking them to clarify that and to ensure those transfers in kind can be made within those financial institutions at no cost to the customers.”
Mr. Cannan said a letter from the Minister of Finance to financial institutions regarding Registered Retirement Income Funds was mailed today (see below).
“I know the effects on personal finances are at the top of the minds of my constituents, especially seniors. I have spoken directly with the Prime Minister and the Minister of Finance. Our government is prepared to do what it can to protect the incomes of seniors and families,” said Cannan.
“If seniors have any questions I hope they will not hesitate to contact my office at 470-5075 or ron@cannan.ca and I will be happy to contact the Office of the Minister of Finance to get the answers they require. As well seniors can access information on a number of issues at www.seniors.gc.ca,” he said.
Letter from the Minister of Finance to Financial Institutions Regarding Registered Retirement Income Funds
The Minister of Finance today sent the following open letter to federally regulated financial institutions regarding minimum withdrawal requirements for Registered Retirement Income Funds.
Dear ______:
I am writing to seek your cooperation on an important issue for Canadian seniors, withdrawals from Registered Retirement Income Funds. Many seniors are understandably concerned about the impact of the recent deterioration in market conditions on their financial security and I believe it is important to ensure that they do not face undue obstacles in managing their assets in these challenging times.
A common misconception is that seniors must sell assets to satisfy RRIF withdrawal requirements, something many may not want to do at this time given the recent decline in value of many assets. The income tax rules permit "in-kind" asset transfers to meet the minimum withdrawal requirements – they do not require the sale of assets.
It has been brought to my attention that, in certain circumstances, there may be obstacles to in-kind asset transfers within financial institutions. It has also been suggested that some financial institutions may not be advising clients of this option where it does exist.
To address this issue, I am expecting all financial institutions to accommodate in-kind transfers – at no cost to clients – or offer another solution that achieves the same result. I would ask that you ensure that all clients with RRIFs be made aware that this option exists.
I would like to hear from you by Friday, November 28 to confirm that steps have been taken to ensure that in-kind asset transfers between RRIFs and other accounts are possible at no cost to the client and that RRIF clients will be made aware of this option.
Thank you for your cooperation.
