Gifts from RRSP & RRIF

Tax sheltered plans such as RRSP’s and RRIF’s offer some creative approaches to charitable giving. Withdrawals from these funds are treated as 100% taxable income. However, if the proceeds are donated the resulting income tax credit will offset the tax assessed on the withdrawal. Below are some suggested strategies.

Option 1

Combining a gift of publicly listed securities with a withdrawal from a tax-sheltered plan could allow you to make a contribution to AST, dispose of securities with an uncertain future value and generate tax-free cash for your personal use. This can be accomplished by contributing appreciated listed securities and then making a withdrawal from the RRIF equal to the value of the contributed securities. The credit from the gift of securities offsets the tax on the withdrawal from the plan.

Example.

Contribution of stock:	$100,000
Tax credit:	$48,000
Tax on capital gain from stock:	$ 0
Withdrawal from RRIF:	$100,000
Tax on withdrawal of RRIF:	$48,000
Net tax cost:	$ 0

Option 2

Another plan could be to use the cash generated above to purchase a charitable gift annuity that provides possible tax-free income at a substantially higher rate than received from fixed income investments. This income could be used to support the education of grandchildren, provide for future nursing home costs or to make additional charitable donations.

Option 3

Almost one-half of the value of the mandatory withdrawals from a RRIF is lost to income tax. You could use withdrawals from your plan to pay the premiums on a life insurance policy naming AST as owner and beneficiary. The tax credit from the premium payments will offset the tax on the withdrawals. If you have converted your RRSP to a RRIF, are in the highest tax bracket and have other sources of retirement income, this could be a way to draw down the fund balance without a tax cost on the withdrawals, and support a worthy cause!

Option 4

Here’s a strategy that works best for those who are not in the highest tax bracket. The donation tax credit is provided at the highest marginal tax bracket for all donations over $200 each year. However, the income tax charged on a withdrawal from a registered fund is levied at an individual’s own marginal tax rate. Therefore, the tax credit from the donation can actually exceed the income tax on the withdrawal from the fund!

Example.
Cyril is retired and living on investment income totaling about $25,000 a year, putting him in a 23% tax bracket in Nova Scotia. Assuming he already made $200 of donations during the year and he makes a special donation of $1,000 from his RRSP, Cyril would pay $230 of tax on the RRSP withdrawal. He would also receive a tax receipt for $1,000 that is worth just over 46%, or $460.

By donating $1,000 of RRSP’s to AST, he not only withdraws the funds "tax-free" but also gets an additional $230 ($460 - $230) of tax credits, which can then be used to reduce taxes on his investment income.

Option 5

A gift of the final balance of a registered savings plan such as your RRSP or RRIF can be an effective means of remembering theological education in the future. This can be accomplished in two ways.

1. You can name your estate as the beneficiary of your plan. On your death the funds will be paid to your estate and you can arrange a bequest to AST of this amount in your will. If your spouse has not survived you the entire amount will be taxable, but the tax receipt from the bequest will offset the tax.
2. You can name AST as the beneficiary of your plan by completing the appropriate form from your fund provider (bank, financial planner). On your death the funds will be transferred directly to AST and will not be subject to probate fees, creditor claims or other claims against your estate.

Because RRSP and RRIF balances are 100% taxable on death if there is no roll-over to a spouse, it makes sense to arrange a gift to charity of the fund balance and use other non-taxable assets such as GIC’s or savings bonds to fund bequests to family members.
For further information please contact the Advancement Department.

Disclaimer.