Mother wants to give money to her children

Question: My mother is turning 70 this year [and] wants to give each of her children a sum of money. The only “liquid” assets she has are in her RRSP. Because her RRSP will have to be changed into a RRIF this calendar year I wonder if this will be a good time to minimize the tax impact. I understand that if the RRSP is “cashed in”, the resulting amount is considered income and subject to applicable taxes, some of which are withheld at the time of withdrawal.

She also wants a rainy day fund for unexpected expenses. Again, this would have to come out of her RRSP when we change to a RRIF. Are the same income tax rules applicable or do you perhaps have some tips to minimize the tax impact? Are you aware of any Canadian books on this subject for me to learn more about these issues? – A.V.D.

Gordon’s answer: I sure hope you mean that your mother is turning 69 this year, not 70. The rules are that an RRSP must be converted to a RRIF, an annuity, or cashed in by Dec. 31 of the year in which a person turns 69. If your mother missed the deadline, the plan will consider to have been automatically deregistered by the Canada Revenue Agency. If she is in fact gng to be 70, you need to check with the plan administrator immediately to determine its status and professional assistance may be needed.

Assuming you simply got her age wrong then she does indeed have the option of cashing out the RRSP. Whether this is the best choice will depend on how much money is in the plan and what other income she has. The proceeds from any withdrawal or from a plan wind-up are taxed in her hands at her marginal rate. A withholding tax of up to 30 per cent applies at the time of the withdrawal, with the exact rate depending on the amount of money involved. The tax treatment of money withdrawn from a RRIF is the same as from an RRSP.

As a general rule, the more money that is in the RRSP, the less desirable the cash-out choice becomes because of the high tax it will attract.

I have co-authored a book titled The Complete Guide to RRIFs and LIFs that provides more information. It can be purchased at 

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