RRIF REGISTERED RETIREMENT INVESTMENT FUNDS
If you hold an RSP, you face a major decision in the year you turn 69 – what to do with the money that has accumulated. There are three main choices: Cash in your RSP and claim it all as taxable income Buy an annuity Transfer your RSP to a Registered Retirement Income Fund (RRIF) [...]
If you hold an RSP, you face a major decision in the year you turn 69 – what to do with the money that has accumulated.
There are three main choices:
- Cash in your RSP and claim it all as taxable income
- Buy an annuity
- Transfer your RSP to a Registered Retirement Income Fund (RRIF)
Cashing in your RSP will generate a hefty tax bill and eliminate many of the advantages of investing in an RSP in the first place. Buying an annuity gives you the security of guaranteed payments for a fixed term, or for life, but you lose control over how your money is invested, and your payments are not normally indexed for inflation.
Why a RRIF?
Your most attractive option may be a RRIF. You can buy RRIFs as GIC-type investments, although many people increasingly choose mutual funds or even self-directed RRIFs that let you hold mutual funds, stocks, bonds, and mortgages. A self-directed RRIF carries an annual administration fee ranging from $100-$300, so the size and performance must be high enough to justify the increased costs.
You must make a minimum annual withdrawal from a RRIF, which is added to your taxable income. is minimum withdrawal begins at 4.76 per cent of your RIFF’s value at age 69 and increases to 20 per cent at age 94 and beyond. Bear in mind that if your RRIF earns less than 4.76 per cent, you are encroaching on your capital right away.
When a RRIF holder dies, the money in the plan is tax deferred if the beneficiary is a spouse or a dependent child or dependent grandchild. RRIFs are offered by most financial institutions such as mutual fund companies, investment dealers, banks, trust companies, life insurers, and credit unions. If you buy a RRIF from any institution other than that where you have your RSP, the transfer can take weeks, so it should be done immediately. Your RRIF must be established by December 31 of the year in which you turn 69.
Shopping for a RRIF
However, it pays to shop around. Here are a few points to consider:
Is it possible to change your plan, and are there additional fees or market value adjustments?