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investor clinic

I have three registered retirement savings plans at different financial institutions. In 2021, after I convert the RRSPs to registered retirement income funds and have to start making minimum withdrawals, do I have to withdraw the required percentage from each RRIF or may I withdraw the entire required sum from, say, the largest account and leave the other two untouched?

You’ll have to make the minimum withdrawal from each RRIF. As I discussed in last week’s column, the minimum withdrawal percentage is based on your age (as of Jan. 1 of the year you make the withdrawal), and rises gradually as you get older. At 65, for example, it’s 4 per cent of the RRIF account’s value (as of Dec. 31 of the year before the withdrawal). By 95, the minimum withdrawal tops out at 20 per cent. (You can elect to use a younger spouse’s age to lower your minimum withdrawals.)

You must convert your RRSP to a RRIF by the end of the year you turn 71, with minimum withdrawals starting the year after the RRIF is opened.

You may find, especially as you get older, that managing withdrawals from three separate RRIFs is a headache. Consolidating your RRIFs at a single financial institution would solve that problem.

“For the most part, one single RRIF is easier to manage. You’ve got one minimum withdrawal, one statement, one website and one password instead of three different ones,” Jim Yim, a financial educator and author of the blog, said in an interview. Managing your investments is also easier when they are all under one roof, he said. “Some people really love this stuff, but generally as you get older, the simpler the better.”

I wanted to make an in-kind withdrawal of $30,000 of shares from my RRSP to my non-registered account. I knew there would be withholding tax of 30 per cent, but when I asked my broker to take the withholding tax out of funds in my non-registered account they refused. They said the withholding tax would have to come from my RRSP, but I don’t have enough cash there. Why would the Canada Revenue Agency care where the withholding tax comes from as long as they get their 30 per cent?

First, some background.

When you make an RRSP withdrawal, there are two amounts to consider: the gross amount of the withdrawal, and the net amount. The gross amount is the dollar value that actually leaves your RRSP; the net amount is how much you end up with after your financial institution deducts withholding tax from the gross amount. Withholding tax rates are 10 per cent for gross RRSP withdrawals up to $5,000; 20 per cent for amounts from $5,001 to $15,000; and 30 per cent for amounts over $15,000. (Withholding rates are different in Quebec).

With cash withdrawals, it’s all pretty straightforward. If you were to withdraw $30,000 gross in cash from your RRSP, for example, the financial institution would remit 30 per cent, or $9,000, of withholding tax to the government and hand you a net $21,000. The gross withdrawal of $30,000 would be added to your income, and the $9,000 of tax withheld would be credited toward your taxes payable for the year. (You could end up paying more tax, or less, on the withdrawal depending on your total income and other factors.)

With in-kind withdrawals, however, it’s a bit more complicated. Withdrawing $30,000 of shares from your RRSP would actually constitute a net withdrawal of $30,000, because you would be transferring $30,000 of value to your non-registered account. To calculate the gross amount of the withdrawal, you would need to determine the dollar value which, after deducting 30 per cent, would equal $30,000. This “grossed-up” amount works out to $42,857 ($30,000/0.7), which is the amount that would be added to your income for the year. The difference of $12,857 between the gross and net withdrawals represents the withholding tax that your financial institution would remit to the government.

When making an in-kind RRSP withdrawal, therefore, you must have sufficient cash in your RRSP to cover the withholding tax. Why couldn’t the financial institution just take the withholding tax from your non-registered account? Canada’s income-tax regulations don’t allow it. “The rule is that the withholding tax must be deducted from the payment coming out of the registered account,” Dorothy Kelt, who runs, said in an interview. If the reader doesn’t have sufficient cash in his RRSP, “his only choice is to sell something so he has the money to pay the tax,” she said.

If I withdraw shares from a RRIF and transfer them to a tax-free savings account, does the value of those shares affect my TFSA contribution space?

Yes. If you withdraw shares with a market value of, say, $5,000 from your RRIF and deposit them into your TFSA, the effect on your TFSA contribution room would be the same as if you contributed $5,000 in cash. Keep in mind that, similar to RRSPs, the gross amount of the in-kind RRIF withdrawal is added to your income, although with RRIFs only the portion of the withdrawal above the required minimum is subject to withholding tax.

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