A Canadian couple, both 70, have substantial wealth in their RRIFs, TFSAs, and non-registered assets. They anticipate a significant inheritance in 5 years. Their current essential expenses are covered by CPP, OAS, and a small DB pension. When planning their withdrawal strategy for discretionary expenses, which sequencing option would result in the lowest overall tax burden over their remaining lifetimes, assuming no major changes in tax brackets and a desire to minimize future RRIF minimum withdrawals?

Question: A Canadian couple, both 70, have substantial wealth in their RRIFs, TFSAs, and non-registered assets. They anticipate a significant inheritance in 5 years. Their current essential expenses are covered by CPP, OAS, and a small DB pension. When planning their withdrawal strategy for discretionary expenses, which sequencing option would result in the lowest overall tax burden over their remaining lifetimes, assuming no major changes in tax brackets and a desire to minimize future RRIF minimum withdrawals?

Answer options: ✅ Aggressively withdraw from RRIFs now to reduce future minimum payments.

• Prioritize withdrawals from non-registered accounts, realizing capital gains as needed.
• Maximize withdrawals from TFSAs to keep registered assets growing.
• Focus on maintaining current RRIF withdrawal minimums, drawing mainly from TFSAs and non-registered accounts for discretionary spending.

Correct answer: Aggressively withdraw from RRIFs now to reduce future minimum payments.

Explanation: Aggressively withdrawing from RRIFs now, especially if they are in a lower tax bracket currently or if it's before the inheritance impacts their income, can reduce a larger future RRIF balance subject to higher minimum withdrawals later. This might involve 'income splitting' opportunities and proactive tax planning, potentially leading to a lower lifetime tax burden compared to deferring RRIF withdrawals which continue compounding and may lead to higher minimum payments in later, potentially higher-income years.