Q&A with Daryl Diamond
I have a client who has been retired for two years and has been drawing his retirement income from a Life Income Fund and also a Registered Retirement Income Fund. He has just been lured back into the workforce with a lucrative contract and doesn't want to take any more income from his plans. Other than simply switching to minimum withdrawal, is there any other way to lower or even stop income from these plans?
Actually there is. With income delivery vehicles such as LIFs, LRIFs, prescribed RRIFs or RRIFs, you can convert them back to their respective accumulation vehicles (LIRA, Locked-in RRSP or RRSP) as long as two conditions are met.
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The minimum withdrawal has been paid out of the plan for that year, and
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The individual is under age 69.
They can then be rolled back into the respective income vehicle at the client's discretion, with maximum deferral being the calendar year end in which they turn age 69.
There are different formulas for the "maximum withdrawal" calculation for LIFs and LRIFs and, of course, no maximum withdrawal limit for RRIFs. All three vehicles also have a "minimum amount" that must be withdrawn once the contract is established. Is the calculation for minimum withdrawal different for each type of plan or is it the same?
The formula for calculating minimum withdrawal is identical for all of these vehicles.
See appendix for the minimum payment calculation factors. The annual minimum amount is equal to the value of the RRIF policy at the beginning of the year multiplied by the appropriate factor by age. To calculate the RRIF minimum withdrawal, the age at the beginning of the year of either the owner or the spouse can be used.
In the year that my client begins drawing an income from his LIF, does it matter whether he commences payments earlier in the year or later since the calculation for maximum withdrawal is expressed as an "annual" amount?
In most provinces it does matter. The current rule stipulates that in the year the contract commences, an individual will receive a prorated amount of the annual maximum income assuming of course that they elected "maximum income". The annual calculation is done and divided by twelve to determine the monthly income. This is what is paid each month whether the income starts at the beginning or the end of the year.
In Quebec, New Brunswick, Nova Scotia, Manitoba and B.C., the maximum payment is not prorated and the full amount can be paid out any time during the year.
Appendix
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(1) "Pre-March 1986" factor can continue to be used for a RRIF that was set up before 1986, unless it was revised or amended at any time or holds an annuity contract after July 1997 for all years that start after the earliest of the following days:
- the day is after July 1997; or
- the day on which the trust holds such a contract.
(2) A "Qualifying RRIF" is one that has never received any property as consideration, other than property transferred from another qualifying RRIF, and was set up during one of the following periods:
- before 1986 and has since been revised or amended;
- after 1986 and before 1993; or
- after 1992 with funds or property transferred directly from another qualifying RRIF.
(3) In all cases, use "All other RRIFs" factor.
Saving changes...