RRIF income splitting
For one, you can split up to 50% of your eligible pension income with a spouse or common-law partner. This can reduce combined tax payable by moving income from your tax return to your spouse’s. RRSP withdrawals do not count, but RRIF withdrawals are eligible to split once you are 65.
Eligible pension income also qualifies for a federal pension income amount tax credit that reduces the tax payable on up to $2,000 of qualifying income. Provincial pension income amounts range from $1,000 to $2,000. So, a small amount of RRIF withdrawals may be tax free or close to it.
Partial conversion of an RRSP
If you convert part of your RRSP to a RRIF, Jackie, only the converted portion is subject to the minimum annual withdrawal. The balance of your RRSP account is not.
If you have multiple RRIF accounts, the minimum withdrawals are calculated independently for each account.
Once again, the minimum withdrawal applies only the year after opening your RRIF. There’s no minimum withdrawal in the initial year.
Confirming minimum withdrawals
Your financial institution is responsible for confirming your minimum withdrawal and making sure you take it each year. They should notify you early in the calendar year about the year-end value and the resulting minimum withdrawal based on your age.
The financial institution will generally give you the option to select the frequency of your withdrawals—such as annually, quarterly, monthly or otherwise—and whether you want optional income tax to be withheld.
As mentioned, there’s no required withholding tax on the minimum withdrawals. Amounts in excess of the minimum, should you take additional withdrawals, are subject to progressively higher withholding tax rates. But since the income is taxable, some RRIF account holders elect to have optional tax withheld in anticipation of the tax owing.
