Advisors employ many strategies to reduce taxes on RRIF withdrawals at or above the minimum – something that may be especially important as retired clients seek more income to meet higher costs driven by inflation.stockstudioX/iStockPhoto / Getty Images
Sign up for the Globe Advisor weekly newsletter for professional financial advisers on our sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know. For more from Globe Advisor, visit our homepage.
Tax-sheltered investment accounts are critical components in financial advisors’ toolboxes. That’s because these investment vehicles are a key part of any strategy to help Canadians achieve major life and financial goals such as saving for retirement, producing a steady income when in retirement, buying a home, or making any other big-ticket purchase in a tax-efficient manner.
Investment vehicles like registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), tax-free saving accounts (TFSAs) and the new tax-free first home savings accounts (FHSAs) have their unique benefits. Yet, investors need to know these tools’ specific characteristics to make the most of these accounts and to generate the greatest tax-sheltered growth. They also need to be aware of the strategies available to tap into these funds.
The following 10 articles published on Globe Advisor this past year focus on some key strategies around these critical registered plans:
The best long-haul RRSP investments from three veteran money managers
The long-term investments inside RRSPs ultimately determine how people live in retirement. The ability to defer taxation to retirement through an RRSP provides an incentive to invest over several decades. That means choosing the right mix of investments that grow over time is paramount. Globe Advisor spoke with three veteran money managers about their best long-haul RRSP investment picks.
Can you have too much invested in RRSPs?
Every January and February, investors are bombarded with reminders to load up their RRSPs for the tax deduction and deferral benefits – and, of course, to save for retirement. But is it possible to have too much in your RRSPs? Many older investors are asking this question after being forced to take out more money than they may want or need from their RRSPs, especially when they’re converted into RRIFs and the mandatory withdrawal rates kick in.
Generating tax-free income in TFSAs with covered-call ETFs gains popularity
Tax-free, high-yield income is likely to grab the attention of many retirees and their advisors, and that’s exactly what an increasingly popular strategy entails, utilizing TFSAs and covered-call exchange-traded funds (ETFs) that generate monthly distributions, with annual yields that can exceed 10 per cent. While potentially a complementary income strategy for retired and retiring clients, it’s not without risks and may not be as effective as other approaches to generate income across various market conditions.
How to manage RRIF withdrawals tax-efficiently to avoid ‘a hefty penalty’
What goes into RRSPs must eventually come out and be taxed as income. Often, that happens after the RRSP has been converted into a RRIF, at which point a specific percentage must be withdrawn every year. Still, advisors employ many strategies to reduce taxes on RRIF withdrawals at or above the minimum – something that may be especially important as retired clients seek more income to meet higher costs driven by inflation.
Is it a good idea for parents to gift money to children for the Tax-Free First Home Savings Account?
Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth in Toronto, has been getting a lot of questions from parents looking at ways to help adult kids buy their first homes. While parents can’t contribute directly to a child’s FHSA, Mr. Golombek says they can gift the kids the money. For example, he suggests gifting each child $8,000 a year for the FHSA once they turn 18, so they can invest the money and allow it to grow for a future down payment.
RRSP season investment fund flows falter to weakest level since 2009 as investors opt for cash
Investment fund net flow figures from the first quarter of 2023 showed a lacklustre RRSP season of $3.7-billion, the worst since the global financial crisis of 2008-09, according to a new report from Investor Economics, an ISS Market Intelligence business. Market volatility, interest rates and rising inflation played a role in investment funds closing in net redemptions for the month of January, says Carlos Cardone, managing director at the Toronto-based firm. “It’s a different environment compared with what we’ve seen in the past 10 to 12 years.”
How to strategize RRIF withdrawals when markets are down
Mandatory annual withdrawals from RRIFs in a down market can be tricky, but with some planning, clients can ease through without issue. Daryl Diamond, founder and certified financial planner at Diamond Retirement Planning Ltd. in Winnipeg, likes to keep a dedicated amount of RRIF portfolio holdings in cash. “We’re looking to not sell invested money when the markets happen to be down and we can do that through a cash wedge strategy,” he says. “We might have 12 to 36 months of cash, depending on the client, so we don’t have to collapse any investments.”
Are RRSPs enough to generate lasting income in retirement?
The majority of Canadians believe they need $1.7-million to retire confidently and comfortably, according to a new survey from Bank of Montreal. But are RRSP contributions enough to retire on? “I tell my clients it depends,” says Ross Ferrier, investment advisor at CIBC Wood Gundy in Thornhill, Ont. “If you’ve never been a saver and you’ve never utilized an RRSP regularly, there’s quite a possibility that the RRSP may not be sufficient.”
Why early RRIF withdrawals don’t work for most retirees
To withdraw early or maintain the status quo? That’s the question some retirees face when deciding on their RRIFs. Some advisors recommend withdrawing from RRIFs earlier than the mandated age of 71 to increase a client’s income and tax efficiency. But Doug Chandler, Canadian retirement research actuary at the Society of Actuaries in Calgary, warns the situation is more nuanced and says, in many circumstances, accelerating RRIF withdrawals isn’t a great idea.
Where investors put their money in this year’s RRSP season
For the first two months of 2023, investors poured money into fixed-income products including guaranteed investment certificates, high-interest savings accounts and short-term bonds. All are paying interest of roughly 5 per cent, well above rates offered on those products during last year’s RRSP season. In fact, the top three ETFs to receive inflows in January and February were CI High Interest Savings ETF CSAV-T, Horizons High Interest Savings ETF CASH-T and TD Canadian Aggregate Bond Index ETF TDB-T, according to National Bank Financial Markets data.
For more from Globe Advisor, visit our homepage.