Registered Savings Plans / RIFs - Registered Retirement Income Funds
RRIFs - Registered Retirement Income Funds
By December 31st of your 71st birthday year, Canadian law requires that you convert your RSPs to a RIF – an investment plan that establishes a retirement income stream.
What Are RIFs?
Before the federal government introduced RRIFs in 1978, Canadians had to either cash out their RRSP money all at once, or buy an annuity when it was time to close their RRSPs. Now, you can convert your RRSP to a RRIF on a tax-free basis, and let your investments build indefinitely.
Think of a RRIF as an RRSP in reverse. Instead of making contributions, you must make withdrawals. And instead of getting a tax deduction for your contributions, your withdrawals are taxed as income, like a salary. But like an RRSP, your investments inside a RRIF get to grow tax-deferred. Any interest, capital gains or dividends are not taxed until removed from the RRIF.
Key Advantages and Benefits of RRIFs- Your investments compound tax-free as long as they remain in the plan.
- You can choose your holdings from a wide range of options.
- You decide how much you want to withdraw each year (above a set annual minimum), which gives you the ability to control how
much tax you pay.
- Use your age to calculate the withdrawal, or if you don’t need the minimum withdrawal amount, use your spouse’s age if they are younger.
- You can leave the remaining RRIF assets to your heirs.
- You can split your RRIF income with your spouse if you are at least 65 years of age and potentially reduce the taxes you must pay on the income.
What are LIFs LRIFs?
When RRSPs mature, they can be converted to RRIFs to generate income. When company pensions or locked-in RRSPs mature, they can be converted to Life Income Funds (LIFs), Locked-in Retirement Income Funds (LRIFs)-No new LRIF's in Ontario after Dec 31 2008.
LIFs and LRIFs are like RRIFs for tax purposes, except that they are subject to additional restrictions on how much can be withdrawn and when. Previously, some provinces required the balance in a LIF to be converted to an annuity by the end of the year in which the annuitant turned 80. In recent years, many provinces have updated their pension legislation to allow annuitants to maintain their LIF for life.
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Tips
You can make your final RRSP contribution on Dec 31 in the year you turn 71.
You may set up a RRIF any time. If you decide to open a RRIF before age 71 you must start taking out income the year after you open it.
You must start to take income no later than Dec 31 of your 72nd birthday year. From a tax perspective you should wait as long as you can before withdrawing funds from a RRIF.
You can have as many RRIFs as you like and transfer capital between them. However, you must make the minimum annual withdrawal from each RRIF.
Your annual withdrawal from your RRIF can be "in kind" rather than cash.
You may hold the same securities in your RRIF that you hold in your RRSP.
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