5 Common Mistakes When Taking RRIF Distributions
There are several mistakes that people make when taking distributions from their RRIF retirement accounts in Canada. The most common ones are as follows.
Taking Distributions Too Early
In Canada, you are generally required to start taking minimum annual withdrawals from your registered retirement income fund (RRIF) at age 71. However, if you are still working and have other sources of income, you may not need to start taking these withdrawals right away. It’s important to carefully consider your financial situation before starting to take distributions, as these withdrawals are taxable and could affect your overall tax burden.
Taking RRIF Distributions Without A Plan
It’s important to have a clear plan for how you will use the money from your retirement account. Will you use it to cover living expenses, pay off debt, or make a large purchase? Having a plan can help ensure that you are making the most of your retirement savings and not squandering them unnecessarily.
Not Considering Tax Implications When Taking RRIF Distributions
As mentioned above, withdrawals from retirement accounts in Canada are taxable. It’s important to understand how taking a distribution will affect your tax situation and to plan accordingly. You may want to consult with a financial advisor or tax professional to help you understand the potential tax implications of your withdrawals.
Not Considering The Impact On Government Benefits
Taking distributions from your retirement accounts may also impact your eligibility for certain government benefits, such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). It’s important to consider how these withdrawals could affect your eligibility for these benefits before making a decision.
Not Keeping Track Of Required Minimum Withdrawals
If you have a RRIF, you are required to take minimum annual withdrawals based on your age and the balance of your account. Failing to take the required minimum withdrawal could result in a penalty tax. Here are the limits:
|95 and older||20.00%|
Overall, it’s important to carefully consider your financial situation and goals before taking distributions from your retirement accounts in Canada. Seeking guidance can help ensure that you make the most of your retirement savings and avoid costly mistakes.