By Olev Edur
The end of the year is approaching, and I’ll have to decide from which of my mutual funds I should withdraw money to comply with the minimum RRIF withdrawal requirement. Is there any rule of thumb that one can use to help with this decision? Should I cash in some of the investments that have lost money, withdraw from those that still show on the plus side but have been dropping lately, or take the money from the winners and “crystallize” my gains? My RRIF portfolio contains half a dozen Canadian and international equity funds and one balanced fund, and I’m not talking a large sum of money— only about $120,000 in total—but I’d like to stretch out that amount as long as I can.
A Nothing abounds like divergent investment opin- ion, but no one knows what the future will bring for any investment. In any event, your agonizing may be for naught.
Since you suggest that the only reason for the RRIF withdrawals is to comply with the legislation, rather than because you need the income or want to make a change in investments, you can always withdraw whichever fund units you want “in kind.” That means you don’t need to sell the fund units and withdraw cash—you can simply withdraw the fund units themselves and, assuming you don’t need the income, put them directly into a non-registered investment account.
You’ll still have to pay tax on the RRIF withdrawal, but there would be no trading fees involved and those same investments can (hopefully) continue to grow in value, albeit now on a taxable basis, in your non-registered account.
Another option is to withdraw the required amount and then, provided you have sufficient contribution room, immediately put the money into a tax-free savings account (TFSA). (There’s no age limit for owning a TFSA.) You won’t get a tax deduction for the TFSA contribution, as happens with RRSPs, but any growth within the TFSA is permanently sheltered from tax. And when you withdraw any money from a TFSA, the withdrawal isn’t considered income, as is the case with RRSP or RRIF withdrawals.
