In our summer 2015 newsletter, we outlined the changes to Retirement Income Fund (RIF) minimum payment calculations which were part of the 2015 federal budget. Specifically, for anyone who was at least 71 years of age as of January 1, 2015, the minimum payment is falling - and this change is effective for the 2015 tax year.
The government is allowing anyone who received a minimum payment in 2015 at the old higher rates to "re-contribute" the difference between the old payment and the new payment and receive a deduction for that re-contribution against their 2015 income. The question is, should you re-contribute?
The answer is not as straight-forward as it seems. While "re-contribution" would result in lower taxes paid at the end of your lifetime. This reflects the fact that when you do not have a RIF beneficiary who is a qualifying spouse or dependent child, the total amount of your remaining RIF balances at death are added as income on your final tax return. Depending on any other income you may already have (Old Age Security, Canada Pension Plan, etc.), the addition of RIF balances on to your final tax return could cause these monies to be taxes at rates of 46% or higher. If you are currently at a lower marginal tax rate, re-contributing might be penny wise but pound foolish!
When a qualifying spouse is designated as a beneficiary, RIF monies can be moved on a tax-free bases to registered plans (RSP/RIF as appropriate) in their name. Even in this situation, however, the same consideration still needs to be made. If RIF balances at the time of your beneficiary's death are high enough that they could be taxed in a higher bracket, then a re-contribution may not make sense.
Due to 2016 being a Leap Year, the deadline for making a re-contribution is February 29, 2016 for both RIFs and RSPs.
Should you re-contribute? Your Scrivens advisor can help you review your situation, and ensure you make the best choice for your money.