Q&A: RRIF Withdrawals

A reader is about to convert to a RRIF and wonders how often he should make withdrawals.

Q – By the end of 2013 I must convert my modest RRSP to a RRIF. Investments are equities and a monthly income mutual fund. I’d like to have some idea as to the most economically efficient frequency for withdrawals, keeping in mind withholding tax and the vagaries of the market. We do not necessarily require the funds on a monthly basis, and quarterly or a lump sum withdrawal (or other) are in the equation. Thanks in advance. – Duncan T.

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A – If you don’t need the money to live on you have a lot of flexibility. In this situation, you may wish to consider making just one withdrawal annually, at year-end, for the minimum amount required by law. This has the effect of keeping your investments tax sheltered for the maximum amount of time. In your case, you won’t have to make your first withdrawal until late December 2014.

The one danger is market timing. You would not want to be forced to sell any equities when markets are in a slump. Therefore you need to do some advance planning. Make sure the RRIF will have enough cash to pay for the withdrawal when the time comes, either by keeping adequate cash reserves or by building them by selling at opportune times over the year. Your financial institution will tell you how much the government requires you to take out each year. – GP

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