Unravelling RRIFs

I do field a lot of questions about RRIFs, (Registered Retirement Income Funds). In fielding these questions I have come to realize there are some common misconceptions of what they are and how they work. First of all, stay calm… RRIFs aren’t that complicated at all and I’ve also included some tips and tricks to help ensure they are personalized to any situation.

First of all, let’s start with where RRIFs start and that is with an RRSP. Simply put, RSPs are where we “accumulate” retirement savings. A RRIF by comparison is just an RRSP with an added choice of income options.

Here is a list of key points to help sort out the little details of how RIF's work:

The Age Issues

• You have the option to convert all or any amount of an RRSP to a RRIF at any age.

• If you have not done so, before then, the RSP to RRIF change must be made by the end of the calendar year you turn 71.

• In other words, a default minimum income option is added to your RRSP whether you opt for it or not.

• The resulting change, RSP to RIF, whether opted for or not, then requires you to withdraw a minimum amount from your RRIF no later than the age of 72 and a yearly minimum income amount every year after that.

RRIF Income Amount

• There is no annual maximum withdrawal amount for RRIF’s

• However, since RRIF income is taxable you are going to consider taxes payable on RRIF withdrawals as a part of your yearly retirement income planning

• RRIF income frequency is flexible, you can withdraw monthly semi-annually, or annually

• RRIF income is also adjustable. Over and above the annual RRIF income minimum you can increase your withdrawal amount and frequency at any time

RRIF Odds & Ends

• Don’t panic, even if a RRIF conversion date is missed most companies will convert RSP’s to RIFs automatically and use a default minimum annual income amounts until you tell them otherwise

• The investments being held in your RRSP do not have to change when converted to RRIF although typically, “income” style assets are best suited within RIF's

• After age 65 RRIF income qualifies for retirement income splitting to save taxes even with a spouse who is under age 65

• Moving beyond RRIFs specifically, the most efficient retirement income tax strategy is to draw income from lower-taxed sources like Open and TFSA plans from retirement age if (pre-71) and defer RRIF income age 72. This can create a number of near “tax holiday” early retirement years and allow RSP’s to continue to grow tax-deferred for a few more years

Retirement income planning is a part of how we help clients make the most of their retirement savings, pay less tax, and optimize ongoing retirement asset growth.