For a better & brighter retirement
The perks and privilege of RRIFs
Keep more, save more
Just like your RRSP, earnings in your plan remain tax-sheltered. Savings are tax-deferred and grow until they are withdrawn, when the holder is potentially in a lower tax bracket.
Generate a steady, predictable stream of retirement income
The key difference between an RSP and a RRIF is that an RSP is used for accumulation of funds while a RRIF’s primarily function is to create an income stream.
Your income stream is completely flexible
While you must at least take the yearly minimum payment; you have the flexibility to choose to receive the payments more frequently and/or a higher level of income. And actually, there is no maximum payment; your RRIF can be cashed in in its entirety at any time.
Complete Control with Flexible Investment Choice
A RRIF is a comfortable transition from your RSP because like an RRSP; you maintain the same high level of control over your investments and the benefit of tax-deferred growth. We'll help you build an investment strategy tailored to your goals and risk profile.
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So you’ve worked hard, and you’ve saved a nest egg, but now you’re ready to convert your RSPs into an income stream, so now what?
The government requires you to take action with your RRSPs before December 31st of the year you turn 71 – you can do it sooner, but no later. Typically, you have 3 choices when deciding with to do with your RSP funds:
Cash in your RRSPs
Most people don’t choose this option because the total amount of your RRSP will be included in your taxable income for that year.
Transfer to a RRIF
RRIFs are the most popular option chosen by our members because RRIFs are similar to RRSPs; your funds remain tax-sheltered until withdrawn and you maintain the flexibility with investment choice.
A RRIF is a bit like a RRSP in reverse. With an RRSP, you accumulate tax-deferred savings to fund your retirement, while a RRIF generates a taxable retirement income stream from these savings. In other words, you make tax-deductible contributions to an RRSP and receive taxable income withdrawals from a RRIF.
You can purchase an Annuity
Typically, an annuity is used to provide a guaranteed, steady income throughout one's retirement years.
THE NITTY-GRITTY: everything you need to know about RRIFs
You don’t make contributions to a RRIF. Instead, you open a RRIF by transferring money from your RRSP. It’s still a registered account, so your investment earnings remain tax-sheltered until you start to withdraw money. As well, a RRIF can typically hold all of the same types of investments as your RRSP.
You can roll your RRSP into a RRIF at any time, but you don’t have to until the end of the year in which you turn 71. Similarly, you can start taking withdrawals from your RRIF as soon as the account is set up, but you must start taking out an annual minimum payment by December 31 of the year following the year the RRIF was established, and each year thereafter. For example, if you open a RRIF in August 2022, you must make your first withdrawal on or before December 31, 2023. A financial professional can help you determine when the best time to open a RRIF is based on your individual circumstances.
The key difference between an RSP and a RRIF is that an RSP is used for accumulation of funds while a RRIF’s primarily function is to create an income stream. In fact, our government mandates a minimum payment that must be withdrawn from your RRIF each year. Check out our RRIF Calculator to explore withdrawal minimums and payment options.
The annual minimum withdrawal amount is calculated by multiplying the market value of your RRIF on December 31 of the previous year by a percentage set by the government, which increases with your age.
If your spouse is younger than you, you can use their age to calculate the annual minimum amount. The lower the age, the lower the minimum amount and the less income tax you’ll pay on the withdrawals. This could be a good strategy if you have other sources of income and want to leave money in your RRIF for as long as possible.
For example, some government benefits, like Old Age Security (OAS), are based on income levels. If your retirement income is too high because of your RRIF withdrawals, you risk receiving lower OAS payments.
While you must at least take the yearly minimum payment; you have the flexibility to choose to receive the payments more frequently and/or a higher level of income. And actually, there is no maximum payment; your RRIF can be cashed in in its entirety at any time. It is important to note though, all payments received from your RRIF are fully taxable and will be included in your taxable income for the year in which they were withdrawn.
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Converting to a RRIF? Look Before You Leap
There’s more to converting your RRSP to a RRIF than meets the eye. Unless you’re careful, you can wind up paying too much tax, create unintended consequences for your estate – even outlive your savings. Here are four tips to start off right.