Trudeau announces fiscal package amid pandemic
The federal government is easing withdrawal requirements for registered retirement income funds (RRIFs) as part of a slate of measures aimed at easing the economic hit Canadian households face in the wake of the COVID-19 outbreak.
Ottawa’s measures will reduce the amount Canadians will be mandated to withdraw by 25 per cent this year amid concerns seniors will be forced to sell assets into a heavily discounted market, thus reducing the potential long-term value of their retirement portfolios in the event of an equity market resurgence. The Canadian government said the measure would cost $495 million of its $82-billion economic response plan announced on Wednesday.
Canadians are required to convert their registered retirement savings plans (RRSPs) into a RRIF at the end of the year a Canadian turns 71, and must withdraw a minimum amount from that fund from that age onward. The minimum rate increases each year at a graduated rate, from 5.28 per cent at age 71 to a full 20 per cent for those 95 and older.
Under the temporary measures introduced, that rate drops to a 3.96 per cent minimum withdrawal for 71 year olds, rising to 15 per cent for those 95 and older. Canadians do have the option of withdrawing more each year.
Reducing the minimum withdrawal amount also comes with a secondary benefit if and when markets rebound. Like an RRSP, withdrawals from a RRIF count as taxable income. Dividends, capital gains and interest on investments can accumulate within the fund tax free until withdrawal.