If you’ve been saving part of your income in your RRSP, by the time you retire you’ll likely have a comfortable nest egg. While there are tips to reduce your taxes when withdrawing your income, there is something else you’ll want to plan ahead for… the Registered Retirement Income Fund.
You must close out your RRSP by the end to the year of your 71st birthday. Thankfully there is an option to convert your investments into a Registered Retirement Income Fund (RRIF). An RRIF, like an RRSP, in not an investment in itself but simply a tax shelter plan that you can benefit from in your retirement.
Unlike an RRSP, you cannot make new contributions to an RRIF. There is also a minimum amount that must be withdrawn from your RRIF each year. This minimum is calculated as a percentage of your plan’s total value at the beginning of the year. The percentage is based on age, from as low as 4.76% at 69 years old to as much as 20% at age 90. Keep in mind that though the percentage increases each year, and depending on the return of your investments, the total value of your RRIF may have decreased as you draw down from the plan. These factors may even out the actual dollar value of your yearly minimum withdrawal.
While still taxable income, the mandatory minimum withdrawal does not incur any withholding tax at the time it is withdrawn. This will allow you to benefit from the entire amount until tax time, at which point you may owe less than most withholding tax brackets, depending on your tax situation. If you plan to withdraw more than the minimum, taxes will be withheld on that additional amount. Maybe you need less than the minimum amount? While you can’t avoid withdrawing it as income, you could move as much of the unneeded money as possible into your TFSA, up to your contribution limit. The TFSA may become a major part of retirement planning since there is no maximum age limit.
Though the Registered Retirement Income Fund has its restrictions, the RRIF will likely be an important part of your retirement.
Converting An RRSP To A Registered Retirement Income Fund (RRIF),Related Posts:
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I have a question: What is the EARLIEST age you can open an RRIF? What if you want to retire at 55?
Alex, you can convert RRSP to RRIF at any age as long as it is before the end of the year in which you turn 71. You could convert in your 20′s, 30′s or 40′s but unlikely that one would do so. Many have converted RRSPs to RIFF in their 50′s.
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This is an interesting idea. Can I collect a canadian pension at 55?
How can I calculate what kind of pension I will have at certain ages?
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The earliest you can collect CPP is 60, though if you wait longer, you will collect more per month.
You can see how much you can collect via http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html
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Thinking of retiring at 57 with my wife being 56…We`ll have approx.$400,000 in rrsp`s…We`ll have about $100,000 each in tfsa when we turn 65…No pensions or other income…We plan on using up all our rrsp`s before 65…So any overage we cash out will go to top up the tfsa and cash for later use…Once 65,we should be receiving oas,cpp,and gis since we`ll have no other income…Those 3 together will get us approx. $3000 net per month between the two of us..We can then supplement our income with cash and tfsa`s…Best way to get max from the man and retire early …I`m not a pro so any advise will be appreciated…Thanks
Thinking of retiring at 57 with my wife being 56…We`ll have approx.$400,000 in rrsp`s…We`ll have about $100,000 each in tfsa when we turn 65…No pensions or other income…We plan on using up all our rrsp`s before 65…So any overage we cash out will go to top up the tfsa and cash for later use…Once 65,we should be receiving oas,cpp,and gis since we`ll have no other income…Those 3 together will get us approx. $3000 net per month between the two of us..We can then supplement our income with cash and tfsa`s…Best way to get max from the man and retire early …I`m not a pro so any advise will be appreciated…Thanks
What if my wife is less than 71 and I am more than 71?? Can I convert mine under my wifes name?? Any info would be appreciated! Thanks!
got the title wrong! can i use my wife in order to convert into RRIF?