Mon to Fri - 10am to 5pm



How can you plan your retirement with RRIF?

April 27, 2022

RRIF Mississauga

Living in Canada has its benefits. Not only because of the diverse range of opportunities its offers but also because if you retire here, there are several tax-deferred saving vehicles that the Federal government has put up for you to take advantage of. One of these policies is the RRIF or the Registered Retirement Income Fund which is available to anyone who has an active RRSP (Registered Retirement Savings Plan). Over the years it has become a popular income-generating option as in this scheme, your investments continue to grow on a tax-deferred basis until you withdraw from them. In this blog, we discuss how you can your retirement with an RRIF scheme and make the most out of it.

The workings behind an RRIF policy

As a federally registered account, this scheme offers you a steady stream of income that you can continue to draw during your retirement. Consider it a continuation of an RRSP with the difference being you can only make withdrawals and can’t contribute.

Now, let’s get into the nitty-gritty of it. You might think that once you start with an RRSP policy you can continue with it till the day you pass away. That’s not how it works, after you turn 71, your RRSP would be de-registered and the financial institution would pay out the balance to you. This entire amount I taxable as your income when you file your annual return. However, if you convert your RRSP to an RRIF account, you will be able to avoid this large tax bill. Yes, you will not be allowed to make further contributions, but you can withdraw and the tax rate on that amount would be very less compared to its counterpart (the minimum withdrawal amount is determined by the Canadian Revenue Agency).

For example, if you’re 72 and your RRIF has around $1000,000, the withdrawal rate would be around 5.4%. That would come up to be $5,400 for the year and you can set-up, up monthly, quarterly, semi-annual or annual withdrawals. You will always have the option to withdraw more than the minimum amount and as it may increase as you grow older, the government gives you the option to make withdrawals based on the age of your partner or spouse if they are younger.

Your RRIF is protected

How so? Well, any cash or term deposits such as GICs and mutual funds that are held in an RRIF account at a CDIC recognized Canadian Financial Institution are protected up to $1000,000 by the Canada Deposit Insurance Corporation. If the institution is a member of the Canadian Investor Protection Fund then the deposits are covered by the CIPF for up to $1 million. That’s why you must do thorough research on where you’re opening the RRIF account.

What happens to my RRIF after I pass away?

That’s a good question and the answer is if you have a qualified beneficiary for your RRIF ( a spouse, dependant child or grandchild), the funds would be transferred to the beneficiaries’ RRSP or  RRIF or any other applicable registered accounts and the transfer is also tax-sheltered.  When the beneficiary is non-qualified such as a sibling or grandchild the beneficiary will receive the value of the RRIF account. However, it is your estate, not the beneficiary that will report the funds as income for tax purposes. If there are no beneficiaries, then the funds would be a part of your estate and will be taxed as income on your estate’s final return.

We hope you now have a better idea of how you can plan your RRIF and use it, so you can be financially independent in your golden years. For more topics like this, keep an eye on this space.