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Registered Retirement Income Funds

Commonly referred to as a RRIF, this is one of the three options available to Registered Retirement Savings Plan (RRSP) holders to convert their tax sheltered savings into taxable income. The other two options are, to purchase an annuity or, simply cash in your RRSP.

The RRIF is a flexible payout of the lump sum of money which you have accumulated in your RRSP. It is almost the opposite of an RRSP, in that you made deposits to your RRSP based on your income and with a RRIF you make withdrawals based on your age or your spouse's age. The payments made to you from a RRIF are taxable, but the investment in a RRIF continue to grow tax free until they are withdrawn.

You may have as many RRIFs as your wish and you may transfer capital from one RRIF to another RRIF or a new RRIF at any time. If you transfer capital to a new RRIF, you will be expected to withdraw the minimum payment for that year from your current RRIF if you haven't already done so. A RRIF is attractive to many people due to the combination of positive tax implications and today's low interest rates.

If you convert your RRSP into a RRIF this year, you are not required to withdraw any payments this year, although you may do so if you wish. You will be required to withdraw the minimum payment for the following year by the end of that year. You may recieve your payments from your RRIf deposited directly to your bank account monthly, quarterly or annually. The only restriction is that the minimum annual payment must be recieved by you before the end of that year. If you don't choose a RRIF or annuity by the end of the year in which you become 71 years of age, the financial institution that holds your RRSP may cash it in and send you the cash less any income taxes which must be withheld. The total value of your cashed in RRSP will be added to your income for the year received .

If you have earned income and a spouse, particularly a younger spouse, you can still contribute to an RRSP for that spouse even though you are 71 or older. Your contribution would go into a spousal RRSP until your spouse reaches age 71. You would receive the tax deduction and your spouse would own the RRSP. If you are trying to minimize the amount of payment you take out of your RRIF you might consider basing your payments on the age of a younger spouse. The rules allow basing minimum RRIF payments on the age of either spouse. Consider also that upon your death, any unused portion of your RRIF can be rolled over to your surviving spouse without tax implications. Your spouse will continue receiving regular taxable payments as you did.

You do not have to be 71 years of age to convert your RRSP into a RRIF. If you have an RRSP, there is no minimum age at which you are restricted to converting it. We cannot stress enough, however, the importance of making a decision about this matter right now if you are 71. Don't count on being notified by your financial institution that it's time to convert. If you don't look into this matter yourself, you may be stuck with a big tax bill at the end of the year.

If you do not have any other pension income, you may consider at least enough of your RRSP savings into a RRIF to generate $2,000 a year in RRIF income which will qualify for the senior's pension income credit. A senior's pension income credit applies to the first $2000 of pension RRIF or annuity income. [The Canada Pension Plan doesn't apply] Remember that you are required to decide the type of investments held inside a RRIF. Because of prevailing low interest rates, I recommend holding some, if not a significant amount of your retirement funds in segregated funds.

Beaton Insurance Services
15310 Pacific Avenue
White Rock, British Columbia, Canada V4B 1P9
Tel: (604) 535-2404
Toll Free Canada: 1-800-667-8818

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