Many of my clients are at or are approaching the age where their Registered Retirement Savings Plan or RRSP suddenly turns into a Registered Retirement Income Fund or RRIF. For some folks who have worked their whole lives, stashing money away every month or every February to build up the nest egg in the hopes of enjoying a relaxing retirement, this is a great time.
For others however, this transition can look more like a penalty that forces them to take income that they don’t want or need. If you have a pension or other source of income, you may wish to leave your RRIF where it is, so it can keep growing (hopefully).
It might sound like a first-world problem, but it can in fact be a problem, because you are going to have to pay tax on that income, even if you don’t want or need it.
In the 2019 federal budget, the government proposed a new tool (and yet another acronym) to financial services and Canadians with a new tax-sheltered registered income plan. They call it the Advanced Life Deferred Annuity, or ALDA. I am suddenly reminded of one of my favourite childhood shows, M*A*S*H where the main character ‘Captain Hawk-eye Pierce” was played by everyone’s favourite uncle Alan Alda.
Back to the Canadian ALDA now.
The new ALDA allows a retiree to transfer up to 25% of their RRIF account value (up to $150,000) to a deferred life annuity. The deferral life annuity allows those payments to be deferred until age 85. That’s 13 more years of tax-deferred growth.
The purpose of the ALDA is to reduce the risk of running out of income late in life. It also presents an interesting opportunity to defer a part of your RRIF payments so they can continue to grow in a tax-deferred vehicle.
An ALDA may not be for everyone, but it is certainly worth looking into, if you happen to be in the camp that does not need or want to begin drawing down your RRSP when you turn 72. They are certainly worth exploring.
If you would like to learn more about the ALDA, and if it might be beneficial for you, feel free to reach out to me for a FREE 15-MINUTE ZOOM OR CALL.
As always, I look forward to hearing from you.
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THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.