With the Liberals’ election win on Monday, some retirees may wonder whether they should defer their RRIF withdrawals in anticipation of the Liberals’ proposal to reduce mandatory minimum RRIF withdrawals by 25% for one year.
The proposal aims to provide retirees with “flexibility to avoid liquidating their retirement savings in a down market to meet current RRIF rules,” helping them preserve capital during this period of heightened uncertainty. Proposal details are yet to come.
“We don’t know how this will be administered,” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth in Toronto. “We assume this proposal will be for the 2025 tax year, which means that people will be able to reduce the minimum amount they take out of their RRIF by 25% for 2025 — although we have not seen any clarification on that to date.”
Retirees who don’t need their mandatory minimum RRIF withdrawals to meet their expenses face the decision of whether to stop the withdrawals “pending an announcement as to whether this will actually be in effect for this year,” Golombek said, or continue the withdrawals “and see what happens” whenever the federal budget drops.
Which course of action should such retirees choose?
Golombek said there are two potential approaches to the proposal, and, given that each approach has a precedent, “the government could go either way.”
For example, in March 2020, the government reduced RRIF minimums by 25% for the year, and those who had already withdrawn more than the lowered minimum RRIF amount weren’t allowed to recontribute the excess to their RRIFs.
In contrast, the 2015 federal budget lowered RRIF minimums and allowed those who had already withdrawn more than that amount to recontribute the excess up until the RRSP deadline of Feb. 29, 2016, and that recontributed amount would have been deductible on their 2015 tax returns.
Referring to the Covid era when recontributions weren’t allowed, “some people who took the money out early in the year — January, February or March, at some point in that time — were out of luck, because they took the money out, they didn’t need the money [and] they wished they hadn’t taken it out,” Golombek said. “And that’s why our advice is to wait and see, until we have some more clarity.”
Wilmot George, managing director of tax and estate planning with Canada Life in Toronto, noted that RRIF minimums were also temporarily reduced by 25% in 2008 in response to the global financial crisis. Those who had already withdrawn more than the reduced minimum were permitted to recontribute that excess amount to their RRIFs.
“There are different ways to structure this [proposal],” George said. Regarding the potential for recontributions, timing could play a role, he said. For example, the 2008 announcement about reduced minimums was later in the year, compared to the 2020 announcement.
Regardless, “certainly, if [clients] don’t need the cash flow from the RRIF today and they have the flexibility to leave the RRIF minimum in the plan until we get more details, that might be the thing to do,” George said. That way, “you can react to whatever the details are, as opposed to acting in advance and then being stuck one way or the other if the legislation is not written in a flexible way.”
Further, details about the measure are likely to come soon, George said, because a federal budget is forthcoming. “We’ll have to wait and see when a federal budget date will be announced,” he said. Or “maybe the government decides to provide a little colour [on the proposal] before that.”
The House of Commons sits from May 26 to June 20.
In a pre-budget consultation, industry organizations called on the federal government to reduce or eliminate the RRIF mandatory minimum withdrawal requirements as a way to help prevent Canadians from outliving their savings.
For low-income seniors, the Liberals promised to increase the guaranteed income supplement by 5% for one year, providing up to $652 more, tax-free, to eligible seniors.