For those of you who have Retirement Income Funds accounts, or RIFs, you should soon be getting letters or notification as to what the minimum required withdrawal amount is for 2024. You can always withdraw more than the minimum, but be aware that all amounts are taxable as income in the year of the withdrawal.
The more important decisions are in what form of asset should the withdrawal be made, and when.
Do you withdraw cash, or “in kind,” which is in the form of an investment such as a stock, bond, mutual fund, etc.? And what time of year should you do so?
There are multiple ways of thinking on the answer to this question. The following is my view, although keep in mind it doesn’t apply to all personal circumstances.
I think that the RIF withdrawal should be made in the beginning of the year, preferably in kind. But if you need the cash as a retiree to cover your expenses, it’s great to know that the money is available and will provide stable payments each year. You can hold the cash in a high-interest savings account and draw from it as you need. I usually set up my clients with a monthly payment to their bank account to provide them with a steady cash flow.
For those who do not need the security of the fixed cash payment, I recommend making a dividend-paying investment equal to the value of the required minimum withdrawal amount. For example, if you withdraw Canadian bank shares, they pay a dividend no matter what account they are held in. Since the dividend is going to be paid anyway, I rather that it be paid outside of the RIF into a non-registered account. (You can opt to move some into a Tax Free Savings Account, but that adds a whole other wrinkle.) The income is taxed at a lower rate as a dividend and is entitled to the Canadian dividend tax credit. If that same dividend is paid inside the RIF account, when those funds are taken out, they are taxed 100 per cent as income.
Although the holder is giving up the tax sheltering of the dividend, eventually the funds will be taxed anyway. But it’s not possible to know when the optimal time is to make the withdrawal without knowing how long one is going to live. That means you can’t calculate the benefit of the sheltering and compounding because you don’t know what the “break even” age would be.
In this case, you can benefit from the tax saving now, versus leaving your estate to possibly pay a much larger amount at an unknown date.
There are many variables that affect what would be the best approach to this dilemma, including price appreciation of the investment, tax brackets and the overall value of the RIF. This is a situation that requires a conversation with your investment and tax professional to decide what is best for your specific situation.
Nancy Woods is portfolio manager and senior investment adviser with RBC Dominion Securities Inc.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
