How to determine 15% or 25% RRIF withholding rate?

[WA96]

I understand that Canada generally will impose a withholding tax of 25 percent on "lump" distributions to non-residents and 15% for "periodic" payments, such as a RRIF. I'm a U.S. resident that will retire in 2021 at age 61. I will convert my RRSP account to a RRIF and would like to draw down on a monthly basis at a rate that is higher than the 3.45% minimum annual amount for a 61 year old called out in the 2020 RRIF Minimum Withdrawal Rate Table. What can I withdraw on a monthly (periodic) basis without triggering the higher 25% withholding rate?

[nelsona]

The term "periodic, for treaty purposes, does not refer to how often the RRIF is paid out, but rather to how much is taken in a year. You are allowed TWICE your minimum or 10% of the value at the beginning of the year.

So, be careful: in the year you start the RRIF, you have NO minimum, and your beginning of year value in 0. So, if you were to, say, start a RRIF today, in December, you could take out 10% of its Jan,1, 2021 value, and be taxed at 15%. But if you start it in January, 2021, you can only take out money in 2022 to benefit from the 15% rate.

And the 15% rate is in effect until you exceed the 10%. So, say on Jan 1, 2022, your RRIF is worth $110K, meaning you could take out $10K at 15%. You could do this in one lump or take it monthly. If you took $1K a month, your first 10 withdrawals would be taxed at 15%, and then the last 2 would be taxed at 25%, since you would have then exceeded your 10% allowance for it to be considered periodic.

[nelsona]

..Twice your minimum or 10%, whichever is Larger.

Once your minimum reaches 5% (at 70), then it is simply twice your minimum.

Btw, the new "minimum" is optional for this year, if you were over 70, you would double the normal minimum to determine your amount.

[nelsona]

So, you might want to create your RRIF this year -- this month --, if you want to start withdrawing in 2021.

[WA96]

Super helpful. Thanks so much.

[ajtobin]

I am a non-resident Canadian, with an RRSP and LIRA in Ontario. Reading this thread, I see the comment about the year I start a RRIF... that there is no minimum established. I am going to start a RRIF now, and do want to take periodic distribution this year. Does this mean that anything I withdraw in 2022 will be subject to a 25% withholding - regardless of the amount?

[nelsona]

that has been my understanding and my experience. If you start the RRIF this year, you can only benefit from the15% on the first 10% beginning next year.