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What Is a RRIF and How Does it Work?

A Registered Retirement Income Fund (RRIF) can be likened to an annuity contract. It is a retirement fund that pays income to beneficiaries. The RRIF is basically designed to provide retirees a predictable and regular flow of income from savings in their RRSP (Registered Retirement Savings Plan) account. 

The RRIF is an arrangement between you and your registered carrier that can be an insurance company, a bank, or a trust company. You will transfer the property to the carrier from an RRSP and the carrier will then make payments to you. The RRIF is registered with the federal government and provides the holder with a steady income in retirement. 

When you work you make contributions to an RRSP and accumulate savings in this account. These contributions must be rolled over when you reach the age of 69. According to Investopedia by converting an RRSP into an RRIF, “people can keep their investments under a form of tax shelter, while still having the chance to allocate assets according to their specifications.”

Benefits of an RRIF

Any earnings in the RRIFs are exempt from Canada Revenue Agency taxes. However, the pay-outs from the fund are considered a part of your annual net income and will be taxed by the CRA.

The RRIF can hold a multitude of investments including GICs, equities, mutual funds, ETFs, and bonds. 

While you need to withdraw a minimum amount every year, there is no limit on the maximum amount. Further, the RRIF holder can choose to withdraw funds on a monthly, quarterly, semi-annually, or annual basis. You have the flexibility to change the amount and the frequency of withdrawals at any time and can also extract a lump sum amount based on your needs. 

In case you have a younger spouse, you can leverage their age to calculate the minimum RRIF amount. The lower the age, the lower is the minimum withdrawal amount, which will also lower your tax bill. 

How much can you withdraw from your RRIF?

You have to start withdrawing money from your RRIF in the year after you open the account. The federal government has set a minimum percentage of the amount that you need to withdraw from the RRIF every year. 

So, if you are 65 years old, you will withdraw 4% of your RRIF value. This number rises to 5.28% at the age of 71, 5.82% at the age of 75, 6.82% at the age of 80, 8.51% at the age of 85, 11.92% at the age of 90, and 20% at the age of 95 and above.

While there is no maximum withdrawal limit, retirees need to understand they will pay a withholding tax on the excess amount. Your financial institution or carrier will withhold tax on this excess amount, based on the tax rates and pay it to the government on the behalf of the RRIF holder. 

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