{"id":37064,"date":"2025-07-31T14:42:08","date_gmt":"2025-07-31T14:42:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/37064\/"},"modified":"2025-07-31T14:42:08","modified_gmt":"2025-07-31T14:42:08","slug":"for-some-retirees-a-promised-cut-to-mandatory-rrif-withdrawals-could-mean-a-bigger-tax-hit","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/37064\/","title":{"rendered":"For some retirees, a promised cut to mandatory RRIF withdrawals could mean a bigger tax hit"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Nuthawut Somsuk\/iStockPhoto \/ Getty Images<\/p>\n

During the federal election campaign earlier this year, the Liberals proposed<\/a> lowering the minimum amount retirees must take out of their registered retirement income funds by 25 per cent for one year. While it\u2019s still unclear whether the government will follow through, many retirees have been waiting for months for clarity as they try to plan their retirement finances. <\/p>\n

On the surface, the policy sounds like a tax break, with more flexibility, less forced income and potentially lower taxes.<\/p>\n

But some financial planners say there\u2019s a downside, specifically for retirees who need more than the minimum RRIF withdrawal to cover day-to-day expenses. If you keep withdrawing the same amount as before, a bigger chunk of it could be taxed upfront. That\u2019s because, while the minimum would be lower, the withholding tax applied to anything above it would likely stay the same.<\/p>\n

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Experts say the policy primarily benefits wealthier retirees who don\u2019t need to withdraw more than the minimum to begin with. But for lower-income Canadians drawing above the minimum, the proposed change could unintentionally increase their tax burden in the short term if the plan doesn\u2019t include changes to the withholding tax.<\/p>\n

\u201cWhile some people may gain from a tax perspective, this is actually going to inflict a whole lot of pain on the other people who are withdrawing more than the minimum,\u201d said Adam Chapman, a certified financial planner in London, Ont., who wrote a post on LinkedIn<\/a> earlier this year about this issue.<\/p>\n

Once Canadians turn 71, they must convert their registered retirement savings plan into a RRIF or an annuity. With RRIFs, the government sets a minimum withdrawal amount each year, based on age. This amount counts as taxable income, but it isn\u2019t subject to withholding tax.<\/p>\n

There\u2019s no maximum withdrawal limit for RRIFs, but anything above the minimum is subject to a withholding tax, meaning your financial institution automatically sends a portion to the Canada Revenue Agency before you see it.<\/p>\n

For example, if your RRIF minimum is currently $20,000, and you withdraw $30,000 one year, that extra $10,000 is subject to withholding tax.<\/p>\n

Under the Liberals\u2019 proposal to reduce the minimum by 25 per cent, your new minimum drops to $15,000. Now, the excess portion is $15,000, not $10,000, meaning there\u2019s a withholding tax on a larger chunk of your withdrawal.<\/p>\n

\u201cThat\u2019s what actually turns this from a simple election promise into something far more complicated,\u201d said Mr. Chapman.<\/p>\n

The issue is compounded by outdated withholding tax brackets, financial experts say. Meanwhile, the cost of living has risen, and more retirees are relying on RRIF withdrawals to fund retirement<\/a>, especially those without pensions.<\/p>\n

\u201cIt hurts the lower-income people more so than anybody else,\u201d said Michael Gesualdi, senior investment adviser at TD Wealth Private Investment Advice. \u201cThe system is antiquated.\u201d<\/p>\n

Wealthier retirees, who often withdraw less from their RRIFs, might benefit from the reduced minimum because it lets them keep a larger amount of money in investments. But even that group should be cautious, some planners say.<\/p>\n

\u201cWealthy retirees are actually shooting themselves in the foot by preferring to defer the withdrawals,\u201d said Russell Sawatsky, a certified financial planner based in London, Ont. \u201cThey\u2019re reacting on a short-term basis, not thinking about the longer-term, more strategic approach . . . like filling their TFSA room, or perhaps transfer some of that extra money into non-registered accounts.\u201d<\/p>\n

The government has not provided an update on whether it will follow through on its promise. The Liberals announced the plan during a period of market volatility, when many retirees were concerned about withdrawing from their RRIFs at a loss, but markets have largely recovered since.<\/p>\n

When asked for an update on the Liberals\u2019 RRIF withdrawal proposal, and if the withholding tax may be altered as well, Marie-France Faucher, a deputy spokesperson for the Department of Finance, said over e-mail: \u201cThe government will have more to say on additional measures to make life more affordable for Canadians in due course.\u201d<\/p>\n

It wouldn\u2019t be the first time RRIF rules were changed like this. The federal government cut RRIF minimums by 25 per cent in 2020 in the early days of the pandemic and did not adjust the withholding tax rates. At the time, retirees who withdrew before the announcement weren\u2019t allowed to recontribute excess amounts.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Nuthawut Somsuk\/iStockPhoto \/ Getty Images During the federal election campaign earlier this year,…\n","protected":false},"author":2,"featured_media":37065,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[45,49,48,133,131,132,136],"class_list":["post-37064","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-ca","tag-canada","tag-finance","tag-personal-finance","tag-personalfinance","tag-r-fp"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/37064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=37064"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/37064\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/37065"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=37064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=37064"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=37064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}