Feb
14
2020
By Keith Wong
Hello;
A RRIF represents the pay-out phase of retirement plans.
What I need to know about RRIF's
- When you move money out of an RRSP, there are generally 3 choices: (1) convert RRSP to RRIF (2) buy an annuity or (3) cash in the RRSP.
- The assets used to establish a RRIF can only come from another registered plan and it is mandatory that you convert your RRSP to a RRIF in the year you turn 71.
- No funds can be contributed directly to a RRIF.
- A RRIF can be established anytime.
- All Income withdrawn from a RRIF is taxable.
- Prescribed rules dictate a minimum percentage of the plans assets must be withdrawn as income in the beginning in the year following the year in which the RRIF is established. Other than the minimum withdrawal, assets that remian within the RRIF may continue to grow tax-sheltered.
- A note - there is no minimum payout required from a RRIF in the year that it is established.
- Excess Amounts: amounts paid to the annuitant from a RRIF in any year, which exceed the minimum amount for that year, are referred to as excess amounts. Withholding tax applies to amounts taken out above the minimum payment.
- It should be noted that there is no maximum amount that must be withdrawn. In other words, an annuitant could withdraw all assets from the RRIF at any time. While such a withdrawal could generate a significant tax consequence, the funds are accessbile and not locked-in.
- Using a RRIF, it is possible to establish a perpetual income from a RRIF over an individuals remaining lifetime or that of his spouse. However, a RRIF provides no guarantee of income for life. If the assets held within the RRIF decrease in value, there will be less money available to provide continuing income.
- Payments from a RRIF must be regular as long as the minimum requirement is satisfied, people can receive their payments monthly, quarterly, semi-annual or even annually.
Minimum Withdrawal Calculation
- The annuitant has the option of electing to have the annual minimum withdrawal calculation based on either his age or the age of his spouse. Age is an integral part of the minimum payment calculation, whereby the minimum withdrawal increases with age. It may be advantageous to use the spouse's age when the spouse is younger than the annuitant (as of Jan. 1st every year). By using the age of the younger spouse, the RRIF calculation produces a lower annual minimum payment than when the age of the older spouse is utilized. The minimum annual payment reduces the asset base of the RRIF. By using the age of the younger spouse, it lowers the minimum prescribed withdrawal and the annuitant increases his opportunity to preserve the asset base for a longer time.
Summary
- The selection of a RRIF as a retirement income vehicle brings with it considerations that must be carefully analyzed relative to the facts of a retiree's particular situation. For many, the ability to retain access to the capital component of the RRIF is valuable both from a personal needs and estate planning perspective.
- Dependent upon investment earnings, a RRIF provides the annuitant with the opportunity to continue to accumulate additional capital. There is however a risk, that in a low-return environment, withdrawals can outpace growth of the fund and can seriously erode the capital base. With reduced capital, the RRIF fund could become exhausted, leaving an individual with limited income opportunity and therefore the potential of a reduction in lifestyle that had not been anticipated. Income withdrawals from a RRIF need to be carefully managed becuase they have a direct impact on the longevity of the RRIF and its ability to provide income during retirement. Withdrawals above the minimum amounts and poor investment returns can contribute to erosion of capital.
Sincerely, Mike Busby
