Q: I now have a sizable RRIF after inheriting my spouse’s RRSP. I’m concerned about the tax impact to my estate. What can I do?
A: Great question. In Canada, RRIFs are treated as fully cashed out upon death, meaning the entire balance becomes taxable income in the year of passing. In B.C., a $400,000 RRIF could trigger up to 53.5% in taxes — over $214,000 to the CRA. But there are two effective strategies to help reduce that burden:
RRIF Meltdown Strategy
Gradually increase your RRIF withdrawals up to your current tax bracket limit without triggering a higher marginal rate.
Example: If your income is $60,000, you may be able to withdraw up to $94,000/year without a tax rate jump.
Use the excess to invest tax-efficiently (e.g. TFSA, segregated funds, or life insurance).
Charitable Giving Offset
Designate a charity to receive a portion of your RRIF. The resulting donation tax credit could significantly reduce your estate’s tax bill, while supporting a cause you care about.
As your RRIF balance decreases and your tax rate changes, you can adjust your beneficiary split over time, eventually leaving more (or all) to your family.
Every situation is unique. Contact your MWFS Account Manager to explore which strategies suit you best.
