Registered Retirement Income Fund
Benefits of opening a RRIF:
A Registered Retirement Income Fund (RRIF) is usually opened when you are ready to draw an ongoing income from an existing RRSP. It is a type of savings account that has the advantage of providing you with a consistent and regular source of income in your retirement. Here are some good reasons to consider opening a RRIF.
- You retain control over how your money is invested. You can choose between investment options such as mutual funds, segregated funds, and GICs, for example, depending on your circumstances.
- You benefit from tax-sheltered savings. When you transfer funds from your RRSP to a RRIF, you won’t pay any tax on your investment earnings or on the funds that remain in the RRIF, though you may have to pay income tax on any money that you subsequently withdraw.
- A typical RRIF offers good flexibility for withdrawals — there is a legislated minimum amount that must be withdrawn every year, but there is no maximum limit. It is your choice as to how often you make withdrawals and how much they will be.
- You have the option of naming your spouse as your beneficiary so that they can inherit the funds in your RRIF in the event of your death, without paying any income tax. In fact, if you choose to name your spouse as a “successor annuitant” they are able to take the RRIF over so that they can receive payments from it directly. In addition, your RRIF is not classified as part of your estate and is therefore exempt from probate fees (Estate Administration Tax).
- A final benefit of an RRIF is that the minimum annual withdrawal amounts depend on your age and are lower the younger you are. The age of your spouse can be used to calculate the minimum annual withdrawals, and if they are younger than you, this could potentially reduce the amount of income tax that you pay on withdrawals.
When is the best time to convert my RRSP to a RRIF?
Saving and preparing for retirement is only half the job. Deciding how, when, in what order, and at what rate to draw from the various potential income sources available to you is a far more complicated process. This is where a Retirement Tax Optimization plan (RTO plan) comes into play.
A customized and effective RTO plan can potentially find tens of thousands of dollars (or even hundreds of thousands) that you would otherwise be paying to the government. These unnecessary payments are often in the form of income tax, reduced benefits, or claw-backs. An RTO plan will integrate all of your retirement income sources and determine which to draw from, when, at what rate, and where to shelter it for later access. You remain in full control of all your assets — you just simply give less of it to the government.
There can be twenty — or more — different ways to access all of the income streams available to you. I use a proprietary system to run scenarios for all possible strategies and generate a report showing which strategy is the most efficient for your specific situation. This is a very sophisticated process, but the results can be potentially life altering for you and your family.
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For more information, or to review your retirement plan, contact me.