“With an election just a few months away, the recent federal budget clearly had one eye on eliminating the deficit and one eye on Canada’s seniors who — no surprise here — go to the polls in large numbers.
From a personal finance perspective, much of the reaction was centered on Ottawa’s decision to almost double the annual contribution room for tax-free savings accounts to $10,000,” wrote Tom McFeat for CBC News on Monday May 18, 2015.
McFeat continued, “But the budget proposal to change how much of your own retirement money you are forced to access after you turn 71 could have broader impact and will eventually affect millions of RRSP holders.
Here’s why.
When it comes time to begin drawing retirement money from your RRSP, you have three choices:
- Collapse the RRSP, take the money in cash, and pay tax on the entire amount.
- Use RRSP funds to buy an annuity that will provide guaranteed income for life.
- Convert the RRSP to a registered retirement income fund (RRIF).
Option one means an instant and often hefty income tax hit and no further income in retirement. Option two provides a guarantee but because interest rates are low, the annual payments will be low compared to years ago. And buying an annuity is an irreversible decision that will leave nothing for the kids.
So most people — especially those who want more control over their retirement funds — choose the RRIF. It was this option that the recent federal budget addressed.”
Read the full article here.
Raymond Matt, CFP, CLU, TEP, CHS
Subscribe to: Post Comments (RSS2)