Q&A: ‘Tax-free’ RRSP withdrawals

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Question: I recently turned 65 and would like to take advantage
of the $2,000 tax-free RRSP withdrawal. Do I open a RRIF account to do this
or just withdraw the $2,000 from my RRSP investments? If a RRIF is opened at
age 65, is there a minimum withdrawal from age 65 to 71? – K.M.

Gordon Pape answers: I believe you are a little confused about
this. There is no such thing as a “tax-free RRSP withdrawal”. You
must be thinking about the $2,000 pension income tax credit, at line 314 of
the return. This allows you to claim a credit for the first $2,000 of eligible
pension income. RRSP withdrawals do not qualify but RRIF payments made to people
65 and older are eligible.

So yes, you would need to convert some of your RRSP savings to a RRIF to take
advantage of this. But you don’t have to convert the entire amount –
just enough to enable you to withdraw $2,000 a year. You are allowed to have
both a RRIF and an RRSP until age 71.

Once the RRIF is set up, minimum withdrawals must be made every year. But if
you take my advice and keep the RRIF small, that should not create a tax problem.

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