RRIF is an income-paying maturity option for RRSP and allows you to use the savings you have accumulated throughout your working life. A RRIF is usually funded by transferring the value of an RRSP account. With a RRIF, you periodically withdraw a portion of your investments based on your personal needs, and your asset value continues to accumulate interest in a tax shelter.
No contributions can be made to a RRIF except in the case of a transfer from another RRIF contract. For each RRIF contract, a minimum amount must be withdrawn each year, as prescribed by provincial law, in the form of retirement income, and this withdrawal is added to the taxable income for the current year. The taxpayer may receive a tax credit for the retirement income. A RRIF can be converted to an annuity at any time.
The minimum withdrawal is calculated based on a percentage of the plan value as at January 1st of each year, and based on the annuitant’s age. There is no maximum withdrawal amount. Note that the calculation can be based on the age of the younger spouse in order to minimize withdrawals.
You have until December 31 of the year you reach age 71 to convert the amounts invested in your RRSP into a RRIF.
The primary advantages of a RRIF are its flexibility when it comes to withdrawals and the freedom it offers in terms of investment options. In fact, the owner of a RRIF is in full control of how the assets are invested, and can invest in most major asset categories (GICs, bonds, funds, stocks, etc.). However, the investments must be planned appropriately in order to ensure that enough cash is available for withdrawals to maintain a comfortable lifestyle and avoid depleting the funds prematurely. Any assets remaining upon death may be transferred to the spouse or to one or more beneficiaries.
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