The term RRIF stands for Registered Retirement Income Fund. If you want to secure a comfortable retirement and financial future, RRIF provides a highly efficient and flexible financial solution that can help manage and control retirement finances.
What is the Definition of Registered Retirement Income Fund?
RRIF is designed to provide retiree with enough income when they retire. It is a tax-deferred plan under the Canadian tax law. People can utilize RRIF to earn money from the savings accumulated in the RRSP or Registered Retirement Savings Plan.
In a RRIF, your capital and interest will accumulate tax-free. However, it’s subject to tax when you withdraw from the fund. You can also withdraw the greater amount limit or the minimum of the guaranteed income, that is, for life.
For example, one of the popular RRIF products in Canada is the GIF Select with Income Plus, which is offered by the Manulife Investments. This product provides people with income source once they retire, or the guaranteed payments which will last for life.
How to Convert RRSP into RRIF?
Keep in mind that the money in your RRIF can be sourced only from your RRSP, or from another RRIF or from a pension plan. Since Registered Retirement Savings Plan can’t be kept once you are 71, your best option is to convert the plan or roll it over into a RRIF.
Before the year you turn 71 ends, you’re oblige to either withdraw the money from your RRSP or convert it your RRIF or life annuity. In case, you choose to withdraw them, the whole amount in your fund will be taxable as any ordinary income. However, you can put off the taxation by converting the investments into an RRIF.
Best Advantages of Registered Retirement Income Fund (RRIF)
Your RRIF’s interest is allowed to accumulate tax free. Once the capital in the fund made up wholly from your RRSP, which has not been taxed, every time you withdraw from the fund, it will be taxed as income. But once you retire you’ll be most likely in the lower tax bracket.
In addition, you may calculate the amount of minimum withdrawal based on your spouse’s, which would be best if the spouse is younger, wherein lower minimums will apply. Lower minimums, as you know, are much preferable if the beneficiary has his (her) own accumulated funds and wants to manage or control the money in the RRIF.
Risks Associated with RRIF
As RRIFs are designed to provide retirees with a guaranteed regular source of retirement income, withdrawing money quickly can be a challenge. Any withdrawn amounts that exceed the minimum are subject to withholding tax. Registered Retirement Income Fund may be undesirable when you require a huge portion of the capital in your RRIF all at once, unless, of course, you’ve other non-RRIF funds in the portfolio.
There are certain penalties that will also apply when you go beyond the minimum withdrawal amount. The withholding tax penalty will be calculated by the dollar amount exceeded.
For more information about Registered Retirement Income Fund (RRIF), and how you can use it to your advantage, consult with a licensed financial advisor.
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