Retirement Funds: For Saving and Giving

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For most people, a Registered Retirement Savings Plan (RRSP) is the best way to accumulate funds for retirement. An RRSP lets you save taxes at the same time. Not only is the amount invested each year sheltered from taxation, but earnings on assets in the fund are not subject to tax. The tax–free compounding will make a huge difference in the amount of money you’ll be able to save for retirement.

Comparing RRSPs and Non–Registered Investments

There is a belief that the dividend tax credit system makes RRSPs obsolete as tax shelters. This belief is false. The tax rules affect the relative tax advantages of investing inside vs. outside of an RRSP, but they do not eliminate the need for an RRSP as a tax shelter. An RRSP has advantages beyond the tax shelter aspect, including serving as a vehicle for creating a dedicated, conscious plan to provide retirement income in the future.

Because fewer and fewer people have company pension plans, the tax sheltering is so attractive, and sizeable contributions can be made (up to $21,000 in 2009), millions of dollars are invested in RRSPs each year.

Options at Retirement

Some people start taking distributions from their pension plans immediately upon retirement. Others defer payments as long as possible. They like to continue taking advantage of the income tax–deferred growth accorded such funds. Further, they may defer payments because they regard a pension account as a financial reserve, to be tapped only when needed.

Distributions, however, cannot be delayed beyond age 71. By that time you must convert the RRSP to either a retirement annuity or a Registered Retirement Income Fund (RRIF.)

An annuity offers the advantages of guaranteed payments and freedom from worry about how funds should be invested; however, on death no residual is included in your estate.

The RRIF is more flexible. You can control how the money is invested, and you can withdraw any amount each year so long as you withdraw at least the minimum specified by the Canada Revenue Agency. And usually, some of the RRIF will be left in your estate on your death.

Charitable Gifts Using Retirement Funds

If a spouse survives you, he or she would ordinarily be the beneficiary of your retirement funds. If you had an RRSP, your surviving spouse could keep the funds in a tax–deferred plan. If you had already converted to a RRIF, your surviving spouse could continue to receive payments, and they would be taxed only as received. If you had opted for a joint-and-survivor annuity for you and your spouse, he or she will receive payments for the balance of his or her life.

In the event that minor children survive you, the retirement funds can be rolled tax–free into an annuity paying them installments until age 18. If the dependant is disabled (whether under or over age 18), a tax–free rollover to an RRSP, annuity or RRIF is permitted.

Possibly, however, you will not be survived by a spouse and have already made arrangements for the children. In that case, leftover retirement funds make an excellent charitable gift because the charitable tax credit will offset the tax on the distribution. Leaving the funds to a beneficiary who is not a spouse or dependant child or grandchild generally would cause the full value of the funds to be taxed in the year of your death. With the charitable gift you preserve the funds intact for your parish, the Diocese of Edmonton, or the Anglican Church of Canada.

The recommended procedure is to designate the Church as beneficiary of all or a portion of your RRSP and RRIF funds.

Example: Barbara T, a single woman, dies at age 75 and leaves $30,000 of her RRIF funds to the Diocese of Edmonton.

Tax on RRIF funds (39% combined rate) $11,700
Tax credit (Combined credit is 50% of gift and entire bequest is creditable.) 15,000

The tax credit will entirely offset the tax on the distributions because the creditable amount of a charitable bequest is 100 percent of net income in the year of death. Thus, if you choose to leave your leftover retirement funds for the Church, no part of the funds will be consumed by taxation.

Retirement Funds and Giving

A charitable gift is one method of assuring that all, or most, of the funds you spent a lifetime accumulating are used for the purposes you choose.

If you would like more information, in confidence and without obligation, please complete and return the Request for Planned Giving Information form.

The information on this webpage does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice. The Planned Giving Office encourages you to seek professional legal, estate planning and financial advice before deciding on a course of action. The examples given above reflect rates at the time of writing and are subject to change.