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What is a RRIF?

A RRIF operates in a similar fashion to an RRSP; it allows you to control how your money is invested. You can continue to grow your investments tax-sheltered until the money is withdrawn (at which point it is taxed as income), and you continue to maximize tax deferral opportunities. Most RRIFs are established on the transfer of RRSP assets. While you can convert your RRSP assets into a retirement income option any time before you reach age 71, it is mandatory that you convert all your RRSP assets before December 31 in the year you turn 71.

You may not make new tax-deductible contributions to an RRIF. You must withdraw a minimum amount each year starting the year after you establish the plan (all amounts withdrawn should be included in your taxable income when filing your annual return).

There is nothing to stop you from taking more than the minimum. However, if you do, any excess will be subject to withholding tax at source. The withholding tax will be taken into account when calculating your tax payable when filing your annual return.

What are the benefits?
  • Control how your money is invested.
  • Investment growth is tax-sheltered until the money is withdrawn, when it is taxed as income.
  • Maximize tax deferral opportunities.
What about locked-in plans?

In your 71st year, assets from your Group RRSP or another employer sponsored pension plan are transferred from its holding account known as a Locked-in Retirement Savings Plan (LRSP) or Locked-in Retirement Account (LIRA), to an LRIF or LIF. Depending on which province your plan is registered in, the LRIF or LIF allows you to have an income without having to cash out everything in one lump sum.

The LIF is available in all provinces except PEI. The LRIF is available for plans registered in Ontario, Alberta, Manitoba and Saskatchewan; the RRIF is available in all other provinces.

When should I start planning?

Don't wait until you are 71 to start planning what you are going to do with your RRSP. If you plan on retiring early, you can start a RRIF much earlier than age 71. Some people use a portion of their RRSP assets to fund retirement before they are eligible to receive either CPP (Canadian Pension Plan) or OAS (Old Age Security).

When should I open a RRIF?

This is dependent on both your current and retirement income needs. You can transfer funds from your RRSP into an RRIF at any age, but you must convert all your RRSP funds no later than December 31 of the year in which you turn 71. By waiting until age 71 you defer the taxes paid on your withdrawals. You can also open additional RRIF accounts after age 71, with funds that come only from existing RRIFs in your name.

How do I calculate RRIF payments?

You decide how much money you want to receive as income, subject to a legislated minimum income payment. Your annual minimum payment is based on your age on January 1, and is calculated as a percentage of your plan value at the beginning of each year.

What is the Pension Income Tax Credit?

All withdrawals are subject to income tax in the year in which they are received. The only exception is the first $2,000, which is eligible for the Pension Tax Credit if you are 65 or over.

How much tax is withheld if I withdraw more than the required minimum amount?

If you wish to make a lump sum withdrawal from your RRIF that exceeds your minimum payment, tax will be withheld. This amount is calculated according to the following table:

Amount of tax withheld when withdrawing more than minimum from RRIF
Amount of withdrawalPercent of tax withheld
Less than $5,000 10%
$5,000-$15,000 20%
More than $15,000 30%
What happens in the event of my death?

In the event of your death, your RRIF (as well as other registered assets) will be distributed to your designated beneficiary once instructions are received from your representative. If you designate your spouse as the beneficiary, your spouse can continue to receive payments from your existing RRIF or transfer it to his or her own. If the proceeds are paid to any other beneficiary, the amount remaining will be added to your taxable income in the year of your death. You may also defer tax by leaving your RRIF to a dependent child.

Contact your local branch or speak with a financial advisor today to find out more.

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