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Applying these tips will help you pass these milestones well and keep your finances healthy.
If you’re retired and turning 65 or 71 in 2024, there are some tax rules you’ll have to consider. The following tips may help to guide you according to your age.
Turning 71 in the year, and you have a registered retirement savings plan (RRSP) and/or a locked-in retirement account (LIRA).
By December 31, 2024 your RRSP and LIRA will have to be closed.
You have 3 options. Any option can be used alone or in combination with one or both other options:
1. Make a withdrawal
If your tax rate is expected to be lower in 2024 than in future years, consider a withdrawal, even if you don’t need it. Although you will be paying tax on that income in 2024, if you pay less tax that what you would have paid on the withdrawal in a future year, it’s a saving. And, if you have TFSA contribution room, consider contributing that amount to your TFSA, where it can grow tax-free. Speak with a qualified tax advisor to learn more about the associated tax cost.
Want to know more about the TFSA? Read this article.
2. Purchase an annuity
Ask your Advisor for an annuity quote.
Want to know more about annuities? Read this article.
3. Open a registered retirement income fund (RRIF) and transfer amounts in cash or in-kind directly from your RRSP to the RRIF. In the case of a LIRA, a life income fund (LIF) is opened, and a direct transfer is made from your LIRA to the LIF.
Note that new proposed regulations would remove the maximum withdrawal for Québec LIF starting July 1st, 2024.
Speak with your Advisor to learn more about the LIF maximum amount.
Want some tips on how to build a RRIF with purpose? Read this text.
65 or older in 2024 and haven’t claimed the pension income amount credit of up to $2,000 (Federal)
If you earn ‘eligible pension income’, there is a federal pension tax credit of up to $2,000 available. This can produce federal tax savings of up to $300. There are provincial tax credits as well that increase your savings, so visit your Provincial or Territorial Department of Finance website to learn more.
You need at least $2,000 in eligible pension income to claim the full $2,000 federal tax credit. Pension income less than this reduces the credit amount dollar for dollar.
If you currently do not have eligible pension income, you may have the opportunity to create it. For example, by making an RRIF withdrawal at age 65 or older, within the year in which you turn 65. An RRSP withdrawal will not qualify for pension splitting or income credit unless under very specific circumstances (as examples: money received because of death of a spouse and in the form of a continued annuity). It needs to be turned into a RRIF first and the withdrawals will qualify after age 65.
If you hadn’t considered withdrawing from your RRSP before age 71 and you don’t need the money, this strategy still has merit. For example, it can be contributed to your TFSA and grow tax-free. At the same time, your future RRIF minimum withdrawal amounts may be reduced, potentially, safeguarding your old age security payments from future clawback.
Safeguard your Old Age Security (OAS)
OAS payments are reduced through a ‘clawback’ when your net income for tax purposes exceeds $90,997 for 2024. The clawback rate is 15% on every dollar of net income in excess of this amount.
If you need extra cash but your net income is close to the threshold for clawback, consider using tax-free TFSA withdrawals as opposed to taxable withdrawals from your RRSP or RRIF. As TFSA withdrawals are tax-free, they have no impact on your ‘net income’ number.
Want to get more strategies to maximize TFSA benefits. Read this article.
Information contained in this article is provided for information purposes only. Its not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.
SLGI Asset Management Inc. is the investment manager of the Sun Life family of mutual funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund’s prospectus. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Sun Life Assurance Company of Canada is the issuer of accumulation annuities (insurance GICs), payout annuities and individual variable annuity contracts (segregated fund contracts). Any amount that is allocated to a segregated fund is invested at the risk of the contract owner and may increase or decrease in value. Sun Life Financial Trust Inc. is the issuer of guaranteed investment certificates.
Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada and Sun Life Financial Trust Inc. all of which are members of the Sun Life group of companies.
