logo logo

Registered Retirement Income Funds - RRIFs

RRIFsBy age 71 your RRSP will mature and you will need to convert it into a RRIF. If you don't transfer your RRSP at maturity into a RRIF it will be fully taxed as if you made a lump sum withdrawal of the entire plan. Just like an RRSPs the income earned inside a RRIFs benefit from tax deferred growth.

At what age can I open a RRIF 

RRIFs can be set up as early as age 55 and no later than age 71.

After I open a RRIF how does it work

Once a RRIF is set up you cannot change it back to an RRSP. A RRIF requires that you start withdrawals in the year after you set up the plan. The withdrawals from a RRIF are based on age and a percentage of the value of asset in your plan. Below is the table with the minimum required withdrawals from a RRIF.

 
AGE AT THE BEGINNING
ON THE YEAR
PERCENTAGE OF THE BALANCE
(minimum withdrawal)
55 years 2,86 %
56 years 2,94 %
57 years 3,03 %
58 years 3,13 %
59 years 3,23 %
60 years 3,33 %
61 years 3,45%
62 years 3,57 %
63 years 3,70 %
64 years 3,85 %
65 years 4,00 %
66 years 4,17 %
67 years 4,35 %
68 years 4,55 %
69 years 4,76 %
70 years 5,00 %
71 years 7,38 %
72 years 7,48 %
73 years 7,59 %
74 years 7,71 %
 
AGE AT THE BEGINNING
ON THE YEAR
PERCENTAGE OF THE BALANCE
(minimum withdrawal)
75 years 7,85 %
76 years 7,99 %
77 years 8,15 %
78 years 8,33 %
79 years 8,53 %
80 years 8,75 %
81 years 8,99 %
82 years 9,27 %
83 years 9,58 %
84 years 9,93 %
85 years 10,33 %
86 years 10,79 %
87 years 11,33 %
88 years 11,96 %
89 years 12,71 %
90 years 13,62 %
91 years 14,73 %
92 years 16,12 %
93 years 17,92 %
94 years old + 20,00 %

 

Do you I have to pay tax on the withdrawals from my RRIF

All withdrawals from a RRIF are taxable at the plan holder's personal tax rate in the calendar year of the withdrawal.

Pension Tax Credit

Your RRIF income is considered a pension and can quality for the $2,000 pension credit on your taxes. The full pension credit can result in up to $450 in tax savings.

Can I split my RRIF income with my spouse or common law partner

Under certain circumstances you can split income with your spouse or common law partner. CRA has different rules depending on age. There are specific rules for those age 65 and older and those age 65 and younger. To find out more contact us.

Do I need to sell my investment to withdraw money from my RRIF

You have the option to take the minimum required withdrawals in cash or in kind. If you choose to take the withdrawals in cash then you will have to sell your investments. If you don't need the funds and wish to keep your investments intact you can make a withdrawal in kind. An in kind withdrawal can be made directly into your non-registered account or a TFSA.

Are RRIF withdrawals Flexible

RRIFs offer flexibility, you can take out more than the minimum required withdrawal for the calendar year. The flexibility to take out more money is a valuable benefit that can be used to fund unforeseen medical expenses, vacations, home renovations or other personal financial needs. Any amount withdrawn above the minimums within a calendar year are subject to withholding tax.

The withholding tax is as follows (All Provinces Excluding Quebec):

  1. 10% on amounts up to $5,000;

  2. 20% on amounts over $5,000 up to including $15,000; and

  3. 30% on amounts over $15,000.

What investment options are available in a RRIF

You can select investments to suite you risk tolerance and personal financial needs. If you are planning to leave the money in a RRIF for a long period of time you may want to invest some of your RRIF assets in equities. Equities have historically outperformed all other asset classes. Investments in equities offer the potential for higher returns. If your main concern is capital preservation you can invest all or some of your RRIF assets in GIC's, GIAs or segregated funds with maturity and death benefit guarantees. If you are concerned about outliving your money you can buy a life annuity or segregated funds with guaranteed withdrawal benefits. There a many investment options all have their advantages and disadvantages. The one thing we would caution against is investing in high risk or speculative investments, avoid these types of investments in a RRIF.   

Benefits of a Life Annuity for a RRIF

Unlike investments that require you to monitor your portfolio or GIC's that pay low rates of interest an annuity provides peace of mind and security. A life annuity is specifically designed to take out the stress of losing your money with investments and outliving your money with low interest rate GICs. A life annuity is similar to a pension. There are different types of annuities that you can buy with your RRIF. You can have a joint last to die annuity to provide income for life to either spouses or common law partners. To protect the annuity income stream against inflation you can buy an indexed annuity. Indexed annuities increase your annuity payments annually based on inflation or a specified percentage. If you are in poor health you may qualify for an impaired annuity, payments can be up to 40% higher than with traditional annuities.

RRIFs vs. Annuities

The table below reviews the implications of funding your retirement with a Life Annuity compared to a RRIF.

 

 

Life Annuity

RRIF

Guaranteed Payment

Payments are guaranteed for life. The one caveat is in a low interest rate environment the guaranteed payments may be less attractive. After the annuity is purchased the payments are locked in for life.

There are no guaranteed payments when investing in equities or bonds. Both of these types of investments are volatile. GICs and GIAs provide stable returns but the funds will be depleted faster. Payments from GICs and GIAs will be less than annuities.

Inflation protection

Traditional life annuities do not provide inflation protection. You can purchase an indexed annuity, the payments will be lower initially but will rise annually.

In a diversified portfolio a portion of assets is invested in equities. Equities provide the potential for growth and a hedge against inflation.

Withdrawal flexibility

Once the annuity is purchased the monthly payments are set for the life.

You have flexibility to withdraw funds at any time. The amount you withdraw above the minimum withdrawals are subject to withholding tax in a RRIF.

Conversion

Once purchase you cannot convert an annuity into any other investment. If a conversion option is allowed there are large penalties.

You can convert a RRIF to an annuity at any time. If the RRIF is invested in GICs or GIAs and is converted prior to maturity there are penalties.

Minimum age

There is no minimum age to purchase an annuity. You can purchase an annuity at any time. You have to set up your RRIF by age 71.

There are no age restrictions when you can convert your RRIF to an annuity. You have to set up your RRIF by age 71.

Tax Implications

Annuity payments from a RRIF are taxed as income.

All RRIF withdrawals are taxed as income.

What if I don’t live as long as I planned; or have a diminished life expectancy due to my medical conditions.

Generally with traditional life annuities payments stop when you die.

You can also purchase a joint life annuity that will continue payments to the surviving spouse; or an annuity with a minimum guaranteed payment period, the remaining value will be paid to the beneficiary or to the estate.

Upon death, the remaining value of your RRIF can be transferred to your spouse, common law partner, financially dependent children or your estate.

Could I outlive my retirement savings?

With a life annuity payments are guaranteed for as long as you live. With a joint life annuity payments are guaranteed for as long as either spouses or common law partners are alive.

Depending on how well your investments perform, how much interest you earn, how much you withdraw each year you could run out of money. This is the biggest risk with traditional RRIFs during periods of low interest rates or negative returns on equity investments.

Spousal protection

This depends on the type of annuity purchased. If you purchase a joint life annuity payments will continue to your spouse or common law partner. With traditional single life annuities payments will end when you die.

Yes only if you designated your spouse or common law partner as beneficiary on your RRIF. When you die your RRIF will be transferred tax free to your spouse or common law partner.

 

Can I have more than one RRIF

You can have more than one RRIF and it is beneficial to do so. When selecting investments we have all heard of asset allocation. With RRIFs what is important is not just asset allocation but product allocation. For example one may wish to buy an annuity with a portion of their RRIF funds and invest the other portion in segregated funds, GICs, or GIAs. This strategy can provide a cushion of having the annuity pay out a guaranteed payment income stream for life while the remaining assets provide liquidity, potential for capital appreciation and a hedge against inflation.

What happens to my RRIF if I die

When you die the remaining RRIF asset will be distributed to your beneficiaries, in the absence of a beneficiary designation the asset will be paid out to your estate. CRA permits RRIFs to be transferred tax free if certain conditions are met.

You have the following options of how to distribute your RRIF, they are as follows:

  1. designate your spouse or common law partner as beneficiary, your RRIF can be transferred to your spouse’s RRIF or RRSP (if under 71 years old) on a tax-free basis;

  2. designate your financially dependent children as beneficiaries, your RRIF can be transferred tax-free to your financially dependent children or grandchildren.

    1. If you were a financially dependent child or grandchild of the deceased annuitant, you may be able to transfer the amount even if the deceased annuitant had a spouse or common-law partner at the time of death. Certain conditions have to be met refer to CRA guidelines for exact terms and conditions or contact us directly.  

    2. If you were financially dependent, but not because of a mental or physical impairment the funds can only be transferred to a term annuity. 

  3. you can rollover the proceeds of a deceased annuitant's RRIF to the Registered disability savings plan (RDSP) of a financially dependent infirm child or grandchild. 

  4. If you do not designate a beneficiary or you designate your estate as beneficiary, the remaining RRIF assets are taxed as income in the year you die. Your beneficiaries will receive the after-tax proceeds of your RRIF from your estate. In Ontario your RRIF will be subject to Estate Administration Tax (formerly called probate fees). There are also additional legal costs to probate your will and distribute the assets of your estate.

 


The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.





Account Types

LIF Min & Max Withdrawals Table



Please provide your contact information a Financial Advisor will contact you.






GMS

Guaranteed Investment Funds


     

Copyright © 2017 Stone-Hedge Financial Group Inc. All rights reserved.
All material on this website (unless otherwise noted) is the property of Stone-Hedge Financial Group Inc. and/or subsidiaries
and is protected by Canadian and International copyright laws.