Registered Retirement Income Funds (RRIFs)
When there is an arrangement between you and a carrier be it an insurance company like us, a trust company or a bank, then it falls under the category of RRIF. It is a perfect way to turn your retirement savings into a stream of income once you're retired. You can transfer money from your RRSP or other retirement savings account into a RRIF and then the company managing the RRIF will make regular payments to you.
There are rules about how much you have to withdraw each year from your RRIF, and the money you receive is taxable. But any money that's still in your RRIF can continue to grow tax-free until you withdraw it. You can set up a RRIF account through a financial institution like a bank or an insurance company and you can choose to manage the investments yourself or have someone else manage them for you.
In Canada, you must convert your RRSPs into a RRIF by the end of the year in which you turn 71, but you can choose to do so earlier. After setting up a RRIF, no further contributions are allowed, although you can have multiple RRIFs. A minimum amount must be withdrawn each year, which increases with age, but there is no maximum withdrawal limit.
Tax-Free Growth
When you convert your RRSP to a RRIF, you won't pay any tax on the investment earnings. As long as your money stays in the RRIF, it will continue to grow tax-free. Tax is only applicable on the amount of money you withdraw from your RRIF.
Flexible Withdrawal Options
Although there is a minimum amount you have to take out every year, you have the flexibility to choose how much and how often you want to withdraw from your RRIF. You can also make lump-sum withdrawals if you need extra cash.
Spousal Age Calculation
If your spouse is younger than you, you can use their age to calculate the minimum amount you have to withdraw every year. This could lower the minimum amount and the income tax you pay on withdrawals.
Tax-Free Inheritance
If you name your spouse as your beneficiary or "successor annuitant", they can inherit your RRIF tax-free without it being included in your final income tax return. When calculating probate fees, the worth of your RRIF will not be taken into account as it is not considered a part of your estate.
