Registered Retirement Savings Plans, also known as RRIFs are a popular choice for clients with maturing Registered Retirement Savings Plans (RRSPs). RRIFs can start at any age but must do so no later than the end of the year in which the taxpayer reaches age 71. So much for the basics. Here are some examples of how they can be used:
Blake is now 68 and married. He has decided he needs more income to maintain his chosen lifestyle and so is looking to withdraw money from some un-matured RRSPs. He has three choices – take lump sum withdrawals (which of course are taxable), buy an Annuity (fixed, taxable monthly payments for the rest of his life) or purchase
Lump sums are a possibility but they don’t qualify for any pension tax credits and can only be made up to Blake’s age 71 when he has to make a final choice regarding the RRSPs. The annuity option probably isn’t the best choice at this time for Blake as there is no flexibility in the payments – they are fixed, arrive on a monthly basis and last for life.
RRIF holders must take a minimum amount of money each year and it is based on a formula of percentages that are published regularly by the Ministry of Finance through the Canada Revenue Agency (CRA). The minimums are determined on January 1st of each year
Another taxpayer, Rose is married – she is 71 while her husband is only 62. RRIF minimums are based on the age of the taxpayer
Some important Income Tax information. All payments from RRIFs are taxable. Minimum payments are not subject to mandatory withholding of tax however it is a good idea to have tax remittances set up with the issuing institution so you don’t get a big surprise come April 30th of each year. As the lowest combined Federal and Provincial/Territorial tax rate is 20%, this is a good starting place for your calculations. Additional payments above the minimum amount will be subject to a withholding tax that ranges from 10 to 30% (outside Quebec) depending on the amounts withdrawn.
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