Reducing taxes on RRIF income

Zoomer | January 1st, 2006

Question: I turned 69 last year and switched my RRSP to a RRIF account. Now I have to start drawing down the RRIF, about $7,000 this year, even though the money is not needed yet. Is there any good way to reduce the tax bite on this extra income? My marginal tax rate is about 38% now which is considerably higher than when I put the money into the RRSP.

Answer:

Unfortunately, money coming out of a RRIF is taxed at your marginal rate. There is no really simple way around this.

There are some rather complicated strategies you can consider if you’re determined to beat Revenue Canada. For example, you could borrow money to set up a non-registered investment account and use the interest deduction to offset the RRIF revenue. But this involves going to a lot of trouble (and a degree of risk) to avoid paying taxes on $7,000. If I were you, I’d be happy to have enough retirement income to put you in a higher tax bracket and enjoy your life.