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A Registered Retirement Income Fund allows investors to continue benefiting from tax-sheltered growth of their RRSP savings, while providing an income stream to support their retirement lifestyle.

What is a Registered Retirement Income Fund?

  • While RRSPs help you save for retirement, RRIFs are used to withdraw income during retirement. You’re not allowed to make contributions to RRIFs and you’re required to make minimum withdrawals each year. That being said, even though you cannot contribute to a RRIF, your investments continue to grow tax-deferred inside the RRIF until withdrawn.

RRIF Benefits

  • Delivers continuous stream of income during retirement
  • Holdings can be chosen from a wide range of options.
  • Investments can continue to grow on a tax-free basis within the plan
  • Income tax on the amount transferred from your RRSP to RRIF is deferred until a withdrawal
  • RRIF income can be split with a spouse if spouse is at least 65 years of age
  • RRIF assets can be left to heirs.

How Do I Open a RRIF?

  • An RRSP can be rolled into a RRIF at any time, but you’re required to do so by the end of the year in which you turn 71. At that time, the RRSP matures and must be deregistered or converted to either a life annuity or a RRIF.
  • To convert an RRSP to a RRIF, a RRIF account needs to be set up first and then assets from the RRSP can be transferred over 'in kind' without incurring a taxable transaction.

Can I Contribute to an RRSP in the Year I Turn 71?

  • Yes, a final RRSP contribution can be made until December 31 in the year that you turn 71*

Can I Continue to Contribute to a Spousal RRSP After I Turn 71?

  • Yes, you can continue to contribute to a younger spouse's RRSP up to, and including, the year in which your spouse turns 71.

What Happens to My RRIF When I Die?

  • Upon death, your RRIF can be transferred to your surviving spouse tax-free, if they are named as your beneficiary. In this case, the value of your RRIF will not be included in your estate when calculating probate fees.

RRIF FUNDAMENTALS

How Much Do I Need to Withdraw?

  • Each year (beginning the year after the RRIF was opened), a taxable "annual minimum amount" must be withdrawn from your RRIF.
  • The minimum is based on a set formula that takes into consideration your age (or your spouse's age) and the market value of the account on January 1 of the withdrawal year.
  • If your spouse is younger than you, you can use their age to calculate the annual minimum amount. The decision to use the younger spouse 's age must be made before the first minimum withdrawal is received and cannot be revoked after.
  • You may start receiving withdrawals from the RRIF as soon as the account is set up, but the annual minimum payment must be taken by December 31 of the year following the one in which the RRIF was established and then each year thereafter. For example, if the RRIF was opened in August 2019, the first withdrawal must occur by December 31, 2020.
Your Age (at Beginning of Calendar Year) Withdrawal Amount (% of RRIF Market Value)
Younger than 71 Formula is 1 / (90 - your age)
71 5.28%
72 5.40%
73 5.53%
74 5.67%
75 5.82%
76 5.98%
77 6.17%
78 6.36%
79 6.58%
80 6.82%
81 7.08%
82 7.38%
83 7.71%
84 8.08%
85 8.51%
86 8.99%
87 9.55%
88 10.21%
89 10.99%
90 11.92%
91 13.06%
92 14.49%
93 16.34%
94 18.79%
95 or older 20.00%

Taxes on RRIF

  • All RRIF withdrawals are considered income and must be reported on your personal tax return. A T4RIF tax slip (along with a Relevé 2 for Quebec residents) is issued annually for income tax filing purposes.

Withholding Tax – If the RRIF Payment Is More than the Minimum Amount

  • The withholding tax is applied to any portion of the RRIF in excess of the minimum amount
  • For periodic payments, the minimum is pro-rated in equal proportions for the given year.
  • The withholding tax rate applied depends on the amount requested to be withdrawn and whether you reside in Quebec
Amount Withdrawn Above the Minimum Amount Non-Quebec Residents Quebec Residents
Federal Withholding Tax Federal Withholding Tax Provincial Withholding Tax Total
$5,000 or less 10% 5% 16% 21%
$5,001 - $15,000 20% 10% 16% 26%
$15,001 or more 30% 15% 15% 31%

Deciding whether to take more than your annual minimum withdrawal will likely depend on if you have other sources of income (e.g., pension, non-registered investments or part-time job) and your cash flow needs at the time. RRIFs have flexible payouts, so you can change your withdrawals to match your needs without penalties.

RRIFs will likely play a key role in your retirement, so it’s important to work with your financial advisor to plan when you to transfer assets from an RRSP, how much income you require in retirement and what investments you should be using to achieve your retirement goals.

The contents of this piece are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed.

© Copyright 2018 Starlight Investments Capital LP. All Rights Reserved.

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