40 - Wednesday, March 22, 1989 - North Shore News IF YOU have an RRIF or RRSP but no spouse, plan to die early in the year. That will make things less taxing for your heirs. A registered retirement savings plan or registered retirement in- come fund does not die when you do. However, if you have no spouse (or dependent children’ grandchildren under 26, or dis- abled dependent children- grandchildren), all the money in your RRSP or RRIF will be added to your income the year vou die. Arrange to die early in the year and you minimize your incame for that year. For example, with pen- sions, regular pay andor invest- ments, your normal income for the year could be $47,000. Die in December and to your regular income will be added perhaps $50,000 in your RRSP and RRIF for a total income of almost $100,000. That means about 45 per cent of most of your RRSP/RRIF will go to Revenue Canada. However, hang on for another month and the tax man will get on- ly (!) about 26-40 per cent of your fetirement savings. By dying in January, you reduce your total in- come for that year to only slightly more than the $50,000 (the money in your RRSP/RRIF). My colleague Doug Collins, who admits to thinking about RRIFs and annuities occasionally, al- though he doesn’t look that old, raised this issue the other day. ‘*}’ve never seen a clear explana- tion of what happens when you die after you have used your RRSP to buy an annuity or RRIF,"’ he said. “Who gets the money?”’ It’s a good question. And you need the answer to help you make the appropriate choice(s) when you decide how to withdraw your RRSP funds — a decision you must make before the end of the year in which you turn 71. By Dec. 31 of that year, you must take your RRSP as cash, buy an annuity, buy an RRIF or choose a combination of those three options. If you do nothing, your RRSP will probably be paid to you in cash (unless the financial institution has stipulated another default option). By Revenue Canada's administrative practice, you will be taxed the following year on this lump sum withdrawal. Unless you are in such a low tax bracket that you pay no tax, taking your RRSP as cash is usually not a good idea because you lose too much in tax, An RRIF spreads out your in- come until you or your spouse reach 90. At that point, the RRIF must be exhausted. But in the meantime, the money continues to grow tax-free. If you die while money remains in the RRIF (or in an RRSP), these funds may be rolled over tax-free to your spouse's RRSP or RRIF. If you have no spouse, this money may be rolled over tax-free to the RRSP of a dependent dis- abled child/grandchild. Dependent children/grandchildren under 26 could receive some or all of the RRSP/RRIF funds (subject to cer- tain restrictions) and would then declare this money as income — but again, only if there is no spouse. If vou have no spouse, children or grandchildren, you may leave your RRSP/RRIF to another beneficiary. But for tax purposes, the money would first be added to your income the year you die. An annuity, on the other hand, is like a pension. You might choose a 10-vear guarantee. oF tax Savi have the pension continue to veut spouse if vou die first But after the guarantee and sour spouse expire, no further payments are made. In theory, the money of dollars and sense Michael Grenby those who live to less than average life expectancy goes to those who live longer. Howeser, ab there as a payout becuse death occurred before (he guarantee can out, this money would be added to the deceased's income in the year of death — again @ good reason to plan to dic earty in the year. To help you make the correct decisions, rank yourself an a seale of zero ('spend it all’) to five Cleave it afl behind’). Most peo- ple will place themselves some: where betwes . the lwo extremes — usually closer to zero than to five. Then talk co a retirement income specialist to lvarn about your various options for arranging RRSPs and other savings. How comfortable your retirement is will depend largely on your decision. So make the effort to find which option(s) will come closest to meeting your objectives. te Based locally, Mike Grenby writes 2 money column which ap- pears in newspapers across Canada. Although he also works as an independent financial ad- viser, Mike will respond to readers’ questions and story ideas through the paper. Child Care Expenses? VanCity I Pa onal 877-7000 —_——_— The calculation is much more complicated. If it’s not done right, it may cost you money. professionals. 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