Most recently, when on book tour for Never Too Late I ran into a whole bunch of folks who were considering cashing in their RRSPs to transfer the money to their TFSAs or unregistered plan so they would be better sheltered for retirement. Whoa now. Not so fast.
There was the guy who while still working full-time had been convinced that this was a better way to go because of the capital gains treatment and how an RRSP effectively eliminates the benefit. That’s true. If you earn capital gains inside any registered plan, you don’t benefit from the special tax treatment. But that’s not a good reason to haul your money out of the plan whole-hog.
The tax implications of cashing out an RRSP while you’re still working are too horrible to imagine. It would make more sense to leave the assets in the RRSP invested and do all future market-based investing outside of an RRSP where you can earn those gains with less tax.
Then there was the bloke who was under the impression that Registered Retirement Income Funds (RRIFs) were a bad idea. “I hate those RRIFs,” he said, having never met one. His strong response came from the belief that the RRIF set a specific amount that must be taken and he’d be stuck with an inflexible income. I was happy to clarify.
Hold your horses, said I. A RRIF is actually a great way to mature an RRSP. Yes, there is a minimum amount you must take each year, but it is so small in the early years, it’s barely worth mentioning. And there’s the option of taking as much as you want to take, as long as you keep your tax situation in mind as you pull the money out.
Whatever you think you might know, or you’ve been told by an expert, it’s always worth some time to do a little research and verify. It’s funny the lengths to which people will go to save some money on groceries, a new TV or a car, and yet, when it comes to big decisions about their money, they want to leap right in.
Slow down. Get a second opinion. Learn all your options. Then decide.