How Does the RRSP/RRIF Meltdown AI Strategy Work?

RRSP/RRIF Meltdown Overview

The RRSP/RRIF Meltdown AI Strategy works by targeting specific tax brackets to bring income to a certain level.

  • Allows for Rapid Meltdown or Forcing Mixed Withdrawals: You can use registered withdrawals to fill a very large tax bracket and melt down your RRSP/RRIF quickly, or it to only fill a lower tax bracket, essentially capping your registered withdrawals and forcing the platform to draw from other account types.
  • Factors in Other Income: This strategy factors in income from other sources such as pension income, CPP, OAS, and non-registered income.
  • Takes Advantage of Income Splitting: It will also take advantage of income splitting to help a partner/spouse fill their RRSP Meltdown target if their own RRSPs have been depleted. This only takes effect if both partners have an RRSP Meltdown enabled and they are eligible for income splitting.

The benefits to this strategy will depend on your situation. The main benefits can be reduced taxes, increased flexibility and managing government benefit clawbacks.

If you would like to see some case studies focused on the RRSP meltdown strategy, you can watch them HERE.

RRSP/RRIF Meltdown: Key Features

There are several different types of meltdowns you can consider:

Target Tax Bracket, Clawback Threshold, Age Amount or Fed/Provincial Tax Credit

  • Tax Brackets: most of the meltdown options are in line with combined federal/provincial tax brackets. We have also added additional thresholds between the start of the 2nd federal tax bracket and the OAS clawback threshold.
  • OAS Clawback Threshold: this strategy aims to keep your income below the OAS Clawback threshold once OAS has begun. This strategy can be used in tandem with another, pre OAS, meltdown strategy.
  • Age Amount: this strategy targets the Age Amount clawback threshold as of age 65 and aims to keep income below this cut off. This strategy can be used in tandem with another, pre 65, meltdown strategy.  
  • Fed/Prov Tax Credit: this strategy aims to use up all federal/provincial tax credits.

You will also see in each strategy option the age at which the RRSP/RRIFs will be depleted. This is an excellent way to evaluate the trade off of a faster RRSP Meltdown versus the additional tax that may result.