What is a RRIF?
A Registered Retirement Income Fund (RRIF) is an investment account registered with the federal government, designed to provide retired individuals with a steady flow of cash. A RRIF is straightforward to open and involves transferring funds from an RRSP account. A RRIF can be opened at any point in time, but no later than December 31st in the year that you turn 71. You must start withdrawing from your RRIF in the calendar year after opening the account. You can choose the withdrawal amount as long as it satisfies the yearly “minimum amount.”
The amount that must be withdrawn from a RRIF each year is a fraction of the RRIF’s market value at the beginning of the year. The percentage of the RRIF that must be withdrawn starts at 5.28% (as of 2018) at age 71 and increases every year until it reaches 20% (as of 2018) at age 95.
If your spouse is younger than you, the government allows you to use their age for your RRIF minimum withdrawal amounts instead of your own. These withdrawals can be made monthly, quarterly, semi-annually, or annually. To confirm your minimum withdrawal amount, call your North Shore Wealth Management Advisor.
Contributions and Investment Options
You are not able to contribute directly to a RRIF. A RRIF is simply the reverse of an RRSP. Although you are unable to contribute to a RRIF, you can decide which investments are held within it. Some investments commonly held within a RRIF include Guaranteed Investment Certificates (GICs), mutual funds, stocks, bonds, and ETFs.
Impact on Other Benefits
As mentioned earlier, funds are transferred into a RRIF from an RRSP account. When money is put into an RRSP account, it is tax-deductible. People contribute to their RRSP account because their investments grow tax-free and it allows them to reduce their taxable income during the high earning years of their life. Since the funds in the RRIF account have not yet been taxed, withdrawals must be reported for tax purposes. As a result, eligibility for government benefits like Old Age Security may be impacted, through what is known as a “claw back.” In order to limit benefit reductions, it is imperative speak with your North Shore Wealth Management Advisor to develop a strategic retirement plan.