Q&A: Taxes on RRIFs

Question: I’ve read your books The Retirement Time Bomb and Tax-Free Savings Accounts . The information is highly valuable and helps to plan our investment strategies. However, I have a question about taxes when a RRIF annuitant dies. I understand that the money goes to the surviving spouse tax-free. In the case where no spouse is involved and no child can be declared as dependent is there a way to avoid or ease the tax bite? Thanks for the excellent job in helping us with financial issues. – Jacques B.

Gordon Pape answers: Unfortunately, no. In the situation you describe, the RRIF would be deemed to have been paid out at the time of death and all the money would be taxed as income on the deceased’s final return.

You may find some financial advisors who claim they can reduce taxes on RRIFs but in reality these schemes are based on the use of leveraged investment plans in which interest deductions are used to offset the RRIF tax. You’re not avoiding tax in this situation – you’re just creating a deduction to offset it and taking on considerable risk in the process.

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