What seniors need to know about government help for their RRIFs in the pandemic

The stock market’s bounce off the lows of March should ease some of the anxiety retirees have been feeling about their investments.

Stocks are still well off the highs of early 2020, and more declines could occur if the economic impact of the pandemic threatens to be worse than anticipated. On the plus side, there’s the recent market upswing, and the federal government’s announcement that the required minimum withdrawal from registered retirement income funds for 2020 will be reduced by 25 per cent.

“What the government is saying is, look, we want seniors to be able to preserve their assets,” said Wilmot George, vice-president of tax, retirement and estate planning at CI Investments.

Withdrawing from a RRIF in a stock market crash can be a financially damaging process if you have to sell stocks or equity funds to do it. You’re basically violating one of the main rules of investing by selling low. Doing so means your stocks have no chance to benefit from a rebound to come.

The 25-per-cent reduction in the minimum withdrawal from RRIFs this year will help to a limited extent, as it did when applied in 2008. Back then, retirees who had already withdrawn the originally specified amount from their RRIFs were allowed to re-contribute up to the full amount of the 25 per cent reduction. “There is no provision to let you re-contribute this time around,” Mr. George said.

In 2008, the break on RRIF withdrawals was announced as the global financial crisis took hold in late fall. A lot of people had already made their annual RRIF withdrawals by that time of the year, whereas the pandemic began fairly early in 2020.

One more step for retirees who don’t want to sell hard-hit stocks in their RRIF is to make an “in-kind” withdrawal of a particular stock or equity fund and then move it into a non-registered account or tax-free savings account. “The Canada Revenue Agency has indicated in the past that RRIF minimum requirements can be satisfied by an in-kind transfer from the plan,” Mr. George said.

Expect the same tax hit on RRIF in-kind withdrawals as cash withdrawals, Mr. George said. The asset withdrawn from the RRIF will be taxed at the fair market value on the withdrawal date.

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