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 a RRIF (flexible, taxable payments for as long as the funds last).

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.  A RRIF seems to offer Blake the best of all worlds – flexible payments that are still taxable but the payments are eligible for all of the pension tax credits and pension income sharing when he does his tax return each year.

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 however the taxpayer can take out more than the minimum at any time.  From Blake’s perspective, the RRIF option makes more sense since he wants income (so the minimum requirements are not an issue) and wants to take more money to spend on a random basis for his chosen lifestyle.

Another taxpayer, Rose is married – she is 71 while her husband is only 62.  RRIF minimums are based on the age of the taxpayer however there is a choice of whose age to use.  In most instances, the age of the younger spouse is used because the minimums are smaller.  While her husband Ron is going to be considered as the “measuring life”, the income is still Rose’s and is taxable in her hands.

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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