While most Canadians know all about the benefits of contributing to their registered retirement savings plan (RRSP), fewer understand the potential rewards of transferring their RRSP to a registered retirement income fund (RRIF). Your RRSP matures when you turn 71 years of age. By the end of the year you turn 71, you have the option to redeem your RRSP funds as a lump-sum payment, transfer them to an annuity, or roll them into an RRIF — an account type designed to pay regular income to its holder.
Below are seven reasons you might want to harness the benefits of the RRIF.
1. Grow your savings tax-deferred with a RRIF
All of your RRSP assets can be transferred in-kind, tax-free to your RRIF — and once there, the assets continue to grow on a tax-deferred basis. But keep in mind, any money withdrawn from your RRIF account is taxable in the year received.
2. RRIFs provide a regular income stream with no withholding taxes on the minimum payment
While there is an annual minimum payment amount that must be withdrawn from your RRIF account, there is no maximum amount. Withdrawals can include both systematic payments and/or lump-sum amounts, and payments can be modified at any time to meet your income needs. Best of all, unlike withdrawals from an RRSP, there are no withholding taxes deducted on your minimum RRIF payments. Note that a withholding tax is applied to withdrawals above the minimum amount.
3. You can base your RRIF payments on your younger spouse's age (if applicable)
While minimum payments are required when setting up RRIF accounts, you can elect that the minimum payment be based on your spouse's age, providing additional flexibility if your spouse is younger than you by reducing your mandatory withdrawal amount.
4. You can split your pension income up to 50%
Since 2007, up to 50% of eligible pension income can be split with a spouse or common-law partner for individuals 65 years old or older. Since RRIF income qualifies as eligible pension income, this can mean huge tax savings for Canadian families.
5. You may be eligible for a Pension Income Credit of $2,000
Starting at age 65, income from your RRIF qualifies for up to $2,000 towards the Pension Income Credit each year (if it's not already being used with a private pension plan), which could mean a substantial tax savings over time.
6. You can leave your RRIF to your spouse tax-free
If your spouse is named as the beneficiary of your RRIF, it can be transferred tax-free to their RRSP or their own RRIF. If you name your spouse a successor annuitant, they can take over your RRIF tax-free and start receiving RRIF payments. In both cases, your RRIF will not make up part of your estate and will avoid probate fees.
7. Benefit from lower RRIF minimum payment amounts
The 2015 federal budget reduced RRIF minimum payment amounts to reflect the increasing longevity of Canadian seniors, and the need to plan for longer retirement periods. The lower RRIF minimum payment amounts may provide you with more flexibility when planning your retirement income payments.
RRIF minimum withdrawal schedule:
| RRIF payment age (at start of year) | RRIF minimum payment amount factor (%) |
|---|---|
| 65 | 4.00 |
71 | 5.28 |
75 | 5.82 |
80 | 6.82 |
85 | 8.51 |
90 | 11.92 |
90 and over | 20 |
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.
