Current Market Conditions
Important information from the BMO Retirement Institute
At BMO Financial Group, we understand your concerns around current market conditions, especially if you are near or in retirement. Here, you will find up-to-date information that relates to your retirement savings or income.
Retirement Strategies in Volatile Markets
Depending on how close you are to retirement, your approach to savings will need to be different. Consider these retirement strategies, whether you are:
5 - 10 years from retirement
With enough time to benefit from a recovery in the market, you should:
- update or create your financial plan
- stay invested and keep saving
- continue making RRSP contributions to generate tax savings
- take advantage of the BMO Tax-Free Savings Account
Planning to retire this year
In order to make sure that your retirement savings last, you will want to:
Currently retired
To minimize losses made through the sale of investments, you will want to:
- consider an ‘in-kind’ withdrawal from your RRIF (if you don’t need the money this year)
- roll small balances from locked-in accounts to an RRSP or RRIF on a tax-deferred basis*
- consider rolling your RRIF back to an RRSP on a tax-free basis (if you are under age 71 and do not need the RRIF income)
To discuss your needs directly, contact a BMO Financial Planner or a BMO Nesbitt Burns Investment Advisor.
News Regarding In-Kind RRIF Withdrawals, as of January 2, 2009
Reduced Minimum Withdrawal
The Government of Canada has proposed reducing the required minimum withdrawal by 25% for the 2008 tax year. For example, if you were required to make a $20,000 withdrawal under the current rules then that minimum amount would be reduced to $15,000 under the proposed rules.
Clients who have already withdrawn more than the reduced minimum amount would be allowed to re-contribute the excess amount (in the above example, up to $5,000) back into the RRIF. You have until March 1, 2009 or 30 days after the legislation is enacted into law to re-contribute the 25% amount. Taxpayers making these recontributions will be allowed to claim a deduction for the amount recontributed on their 2008 returns.
RRIF In-Kind Withdrawal Strategy for Current Market Conditions
Due to the current market downturn, RRIF account holders may want to consider an ‘in-kind’ withdrawal. Instead of withdrawing cash, account holders have the option to make their withdrawal in-kind with no additional fees.
| What this means: |
Rather than selling the investments in your RRIF account and withdrawing the cash proceeds, you can make your annual withdrawal by removing the investments themselves. |
| Benefits: |
The primary benefit of the In-Kind RRIF withdrawal is that you are not forced to sell at a loss. You can continue to hold the investments and sell them at a future date. |
Tax implications
include: |
The market value of the investments withdrawn will be taxable.
You will be taxed on the amount withdrawn, even though you have not taken cash.
When you later sell the investments, an increase in price will be considered a taxable capital gain; a decline in price will be considered a capital loss. |
| You will benefit from an In-Kind RRIF Withdrawal if you: |
have not yet made the minimum withdrawal from your RRIF this year
do not need the cash from RRIF income to fund immediate expenses
do not want or need to sell any investments before the end of the year |
Example:
Judy is required to take out $5,000 from her RRIF by the end of 2009. Because she does not currently need the cash, and since her investments have declined in value, she does not want to sell them at a loss.
What Judy can do is make an in-kind withdrawal from her RRIF. This means that she could transfer the $5,000 worth of investments from her RRIF to a taxable account or Tax-free Savings Account (TFSA). Judy will still have to pay tax on the $5,000 she withdrew from her RRIF, but she can wait until the market rebounds and then sell her investment at that time.
For example, if her investment grows to $6000, she will realize a capital gain of $1000 ($6,000-$5,000) upon the sale. If these investments are in a TFSA, she would not pay any tax on the capital gains.
To discuss your needs directly, contact a BMO Financial Planner or a BMO Nesbitt Burns Investment Advisor.
* Rules vary by provincial pension legislation.
Retirement Your Way®
