Stocks and exchange-traded funds after 71 years

Question from Louise, one of our readers: I have a self-directed registered brokerage account (RRSP) in which I have stocks and various exchange traded funds (ETFs). I am retired, but I do not plan to withdraw from this account for several years. When my RRSP is converted to a RRIF at age 71, will it be possible to keep these stocks and ETFs, or should I sell them to make the annual mandatory withdrawals from my RRIFs?

Answer: Every RRSP has an end, in this case on December 31 of the year you turn 71^e birthday. At that point, you can convert that savings plan to a RRIF. But that’s not the only option, says independent financial planner Hadi Ajab.

“You don’t have to convert it to a RRIF. On the other hand, the RRSP has to end somehow, ”he says. You could also withdraw these amounts in full or buy yourself an annuity or make a full taxable withdrawal.

Transfer from RRSP to RRIF

When it comes to your stocks and ETFs, be aware that investments that are qualified in an RRSP are also qualified in a RRIF. Therefore, you will not have to part with them and you can continue to hold them in a RRIF, where they will continue to grow tax free. In contrast, withdrawals from a RRIF are considered income and are taxable.

In addition, the minimum withdrawal amounts are set by the Canada Revenue Agency, and increase with age. By current standards, at age 71, you will need to withdraw 5.28% of your RRIFs. At 88 years old, the percentage is 10.21% and 20% after 94 years.

« If you have a spouse, you could however choose the percentage that corresponds to the age of this one, according to the formula which is most advantageous for you », indicates Hadi Ajab. For example, if your spouse is 60, the percentage would be 4% and 4.76% if he is 65.

He adds that having a good disbursement strategy is essential to choosing the most appropriate options for your situation. “You have to figure out how much you will need to withdraw and then allocate your assets accordingly. In the case of short-term withdrawals, it will be important to reduce the risk on them, ”he notes. If you hold ETFs in your RRIFs and you need to withdraw amounts within the next 12 months, it is therefore preferable to invest them in liquid securities in order to reduce the risks on this portion.

Do not hesitate to consult a professional who can help you find the best disbursement and asset allocation strategy.

You have questions ? Write to me at emmanuelle.gril@quebecormedia.com.