Do you want complete control over how you access your retirement savings?
One of the best things about RRSPs is the ability to defer paying tax on that income when you take the RRSP out. But the Federal Government really looks at RRSPs as a tool to save for retirement. As part of that, the rules say that you can't defer paying tax on your RRSP savings indefinitely.
By the end of the year that you turn 71 you have to convert your RRSP and start taking some of it out. How do you do that?
A RRIF is a popular option for accessing non-locked-in savings, such as RRSPs, to provide income during retirement. You have great control over how much you take out, while at the same time, your savings remain tax sheltered and under your investment control. You have the additional flexibility of being able to adjust not only how much income you receive, but how often you receive it, and even how it is invested.
You set up a RRIF by transferring some or all of your savings directly from an RRSP. Savings can include funds from a company pension plan (as long as the funds are not locked-in) or a deferred profit-sharing plan, as well as from Group RRSPs or your own personal RRSPs. No tax is payable when transferring RRSP or Registered Pension Plan (non-locked-in) savings into a RRIF. All RRIF investment income accumulates tax-free under the plan, and only withdrawals are taxable.
How much do you need to withdraw?
The biggest advantage to a RRIF is flexibility. You can roll all of your different retirement savings into one pool of money. You take out your minimums and beyond that it is up to you how much to withdraw -- you control the "tap" on how much flows out.
One thing to be aware of with any RRIF, though, is that any money you take out above the minimum will be subject to withholding tax.
If you decide you don't need the money right now, you can still take out your minimum withdrawal and roll it into a TFSA. You'll still pay income tax on taking it out, but it will immediately start to grow tax free -- you won't pay taxes on it again!
Contact us today to find out how to take advantage of the flexibility of RRIFs from Capital Estate Planning.
Individual RRIFs are sold through Desjardins Financial Security Investments Inc. (DFS Investments)