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<Bank raised interest rate>
<Retirement rules>
<RRIF conversion>
<Estate dilemma>
<Stocks into TFSA>
<Article Title>
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Bank raised interest rate
I have a secured line of credit which for several years had a rate of prime plus 0%. Last year the financial institution increased the rate to prime plus 1% citing market conditions and not my credit history as the reason. I would like to ask the bank to reduce the rate from prime plus 1% back to prime plus 0% and ask your advice on how to do this. - Tracy J.
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Prime plus 1% seems out of line for a secured PLC. You should be paying no more than prime plus a quarter. Ask for a meeting with the manager and state your case. The more business you do with the financial institution, the greater the odds they'll see things your way. If they refuse, shop around and, if need be, move the account elsewhere. - G.P.
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Retirement rules
I have just retired and have an RRSP for myself and spousal one for my wife. Can I combine the two and draw on it? If I can't do that, do I withdraw minimum amount on one fund at a time? Does this start when I am 72? I was reading that it would be best to wait till December of that year to start. - Joe
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You cannot combine the two RRSPs - they must remain as separate plans. My advice is not to convert them to registered retirement income funds (RRIFs) until you are required to. That would be by Dec. 31 of the year in which each of you turns 71. The advantage of leaving the money in RRSPs until then is that no minimum withdrawals are required. You can take out only the amount you need. Keep in mind that in the case of the spousal plan, special withdrawal rules apply. If you are unsure about them, check with the financial institution that holds the plan. Once the plans are converted to RRIFs, minimum annual withdrawals must be made from each one. - G.P.
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RRIF conversion
My wife turns 71 in October this year and has an RRSP account. When should she convert it into a RRIF and when will it be necessary to make a minimum RRIF withdrawal? How does one determine the minimum percentage applied and who is responsible for calculating this obligatory amount if the account is self directed? - Bryan N., B.C.
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She can convert to a RRIF any time up to Dec. 31 of this year. Her first minimum withdrawal will be required next year, in 2011. The minimum is based a percentage of the market value of the plan on Jan. 1 of each year. For someone who is age 71 on Jan. 1, the minimum is 7.38% of the plan's value on that date. The percentage increases each year. The financial institution that holds the plan will advise your wife of the minimum withdrawal requirement each year. She can decide if she wants to take the payment in one lump sum or periodically. Withholding taxes will apply. - G.P.
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Estate dilemma
I am a widow, age 62. I am employed and have an annual income of $50,000. I have two children who are the beneficiaries of my estate. I have about $200.000 in RRSPs and own a condo with no mortgage which is valued at approximately $250,000. Is there any way of avoiding estate taxes on the RRSPs upon my passing? I have no other investments. Would having a first right of survivorship help? - Marsha N.
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First, let me clarify a point. There are no estate taxes in Canada. When you die, your RRSP will be cashed out for tax purposes and the total included in your final income tax return, which means it will be taxed at the applicable marginal rate. There is no way around this as long as the money remains in an RRSP (or RRIF).
Assuming you have no reason to anticipate dying any time soon, you may want to consider gradually drawing down the RRSP once you stop working and your employment income drops. At that point you will presumably be in a lower tax bracket so the government won't take as much of your RRSP savings. You could then gift to your children whatever portion of the money you don't need to live on. As long as they are adults, there are no tax consequences to doing that. - G.P.
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Stocks into TFSA
I am wondering how to go about putting stocks I already own into my TFSA. Are they deemed to be sold on the day I transfer them into the TFSA, and then I have to pay capital gains on them or can they just be swapped into the TFSA? - Leonard B., Alberta
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Securities transferred into any registered plan (TFSAs, RRSPs, etc.) are deemed to be sold for tax purposes at that time. If you have made profits on them, they will have to be declared as capital gains. But capital losses incurred in this way cannot be claimed - they are effectively lost. So never transfer a losing security to a registered plan. Sell it first and deposit the cash. - G.P.
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1999 - 48 Questions