Hi. I have a question regarding the withdrawal optimizer and when RSPs are converted to RRIFs. Does the time machine/withdrawal optimizer choose what age is best to convert RSP to RRIF and start collecting payments? (Overriding any age the user inputs). In the Accounts and Investment section where the RRSP is entered, it seems that under the additional information section, there is a mandatory field: “Age converted or to convert RRIF”. I see that it is not possible to leave the field blank and have the optimizer choose for me what age is optimal to convert to RRIF and start collecting payments. Changing to various different ages seems to do the RRIF conversion on whatever age I specify. If the withdrawal optimizer does not choose the optimal age to convert RSP to RRIF, do I need to change the age to convert to RRIF and do various runs to see by trial and error which results in the best for me in terms of minimum lifetime taxes or maximum estate at end of life? Thanks in advance!
There is no optimization for the age to convert RRSP to RRIF, as it is not really needed. The Withdrawal Optimizer withdraws as is optimal from the RRSP/RRIF. The conversion age required only dictates the required minimum withdrawals once converted. It will use the age you entered to enforce those, mostly for users who have already converted. If you haven’t, best to leave it to last possible age of 71 which is the default, and that gives you and it maximum flexibility. It usually likes to withdraw before then to smooth out the taxes, but that entirely depends on the specifics of your scenario.
I'm wondering if the app takes into account the pension income tax credit, which you get when you are 65 or over and have sufficient RRIF income. I believe this is a reason to convert at least some RRSP investments to a RRIF when you are 65.
Yes, indeed it does.
You may want to make partial conversions of an RRSP to RRIF at age 65 and until the RRSP is converted. This is because withdrawals from an RRIF are eligible for the pension tax credit and can be split as pension income with your spouse, whereas RRSP withdrawals are not. You can arrange with your RRSP provider to make partial conversions, to withdraw enough from the RRSP for the tax benefits, without converting the full account (which would then force yearly taxable withdrawals). This is automatically implemented in the TIME MACHINE. Withdrawals from an RRSP from age 65 are automatically considered pension income. You may want to force those withdrawals by setting an AUTOMATIC Withdrawal starting the year the account owner turns 65. This also applies to all other RRSP-like account types (GRSPs, DPSPs, DCPPs, and LIRAs).
Update:
sparklingProkaryotepudding6 wrote:
do I need to change the age to convert to RRIF and do various runs to see by trial and error which results in the best for me in terms of minimum lifetime taxes or maximum estate at end of life? Thanks in advance!
You can now run SCANS on the age of conversion, with or without the Withdrawal Optimizer, to explore its impact on your plan automatically.