Registered Retirement Income Fund Or Annuity
Remember that the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30% and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. Now you reach the year of RRSP conversion year, you are facing the choice to choose either to convert your registered retirement saving plan to RRIF or annuity. In this article, we will discuss the advantage and disadvantage of RRIF and annuity.
I. If you qualify for the following sources of retirement income, you would be wise to consider an RRIF:
1. Old Age Security (OAS).
2. Canada Pension Plan (CPP).
3. A company pension plan.
4. Other non-registered assets.
You would be wise to convert some of your RRSP into RRIF because you will be better able to afford the flexibility and control for tax-and estate-planning purposes that a RRIF allows because your monthly incomes are guaranteed by 4 sources above.
You may consider staggering maturity so portion of your investment in RRIF will generates the necessary cash flow for withdrawals such as buy GICs or bonds so that 20% of the total matures every year.
In RRIF, you are allowed to invest up to 100% of your investment funds in global investments, thereby increasing your investment’s long-term growth and protection? You also protect your investments against any future declines in the value of our Canadian dollar. Besides, it is far more risky to leave all your money in any single country.
Be sure to consult with professional or independent adviser to assist you in building your investment plan and review your plan at least once each year.
II. If you don’t qualify for four of the retirement income sources
You might want to use at least some RRSP funds to buy an annuity as a foundation for your retirement income plan. This provides guaranteed income to cover your minimum retirement income needs.
I hope this information will help. If you need more information of insurance or series of articles of the above subject at my home page at:
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“Let Take Care Your Health, Your Health Will Take Care You” Kyle J. Norton
I have been studying natural remedies for disease prevention for over 20 years and working as a financial consultant since 1990. Master degree in Mathematics, teaching and tutoring math at colleges and universities before joining insurance industries.
RRIF FAQ:
Question: My friend withdrew a large sum out of her RRIF and no tax was withheld at source?
Contacted Revenue Canada and was referred to General Guide but it was no help. She owes a lot of money and she does not have it. If this is a mistake I can request an interest free loan to pay these taxes for her.
Answer: I’m assuming you’re referring to an amount in box 24 of the T4RIF slip she received? This is reported on line 130 of the T1. The fact that tax was not withheld from the payment is not an error on the part of CRA, but the institution where the RRIF is held. Therefore CRA will not make accommodations other than to set up a payment plan. Normal interest will accrue. She definitely needs to contact them to set this up as soon as she receives a Notice of Assessment.
It is VERY important to file her return on time if she will not be paying her balance immediately, as CRA will add penalties in addition to interest.
Question: Can you purchase a rrif before age 60?
Answer: Yes you can.
Question: How soon must one withdraw amounts from rrif if only 65 years of age?
Answer: Do you have a RRIF now or are you transferring your RRSP to a RRIF? You need to transfer out of your RRSP by the age of 69 and transferring them to a RRIF is the best option. I have not heard of any age limit for a RRIF.
Question: How much tax are you expected to pay at retirement?
How much is the withholding tax on RRIF’s? Should you still maximize your RRSP contributions in the few years prior to age 65+ to take advantage of the tax-free growth and tax deduction, even though at 65+, you will be in a higher tax bracket due to income increases (RRIF withdrawals+ pension+investment income, etc.)? In other words, should a low-income, quasi-senior still be sacrificing for savings when the taxman might take just as much away anyways? I am thoroughly confused.
Answer: This is a complicated question. New thought is that if you are not going to accumulate a minimum of $100,000 in your RRSP then it’s not beneficial to contribute. This is because you will receive minimal benefit from the current tax write offs and tax free growth, but could suffer a loss of social benefits in retirement once you begin drawing on the registered savings. Things like Old Age Security supplement are clawed back at relatively modest income levels.
However, if the same money that was going to go into an RSP was invested in a non-registered plan the only income in retirement would be the actual investment income.
I strongly suggest you go meet with a financial planner and discuss your concerns. Then go talk to a second one after that.
Question: What tax form will be used to confirm a 25% repayment of RRIF withdrawals in Canada?
While it was a thoughtful and lenient provision in light of market losses, I do wonder about the expense of creating a form that will only be used in one taxation year.
Answer: It wouldn’t be the first time that a Form was created for a single year use. Many accountants will remember an election for Capital gains that was only available in 1994.
In either case, there is no form for this. What people will use for verification is the documentation provided by their financial institutions. The amount repaid will be claimed as a deduction at line 232 of the income tax return.
Question: Contributing to Your RRSP, Right Up Until Retirement?
If you have room to contribute, should you buy RRSPs right up until age 69, even though you are in a low income bracket?? Are the tax savings (and potential investment growth) worthwhile, even though at retirement, you will be forced to withdraw and the tax on RRIF and pensions will be as significant? (possibly putting oneself in a higher tax bracket?) Don’t know how to plan this out.
Answer: You need to consider how much you’ll save on taxes NOW, by contributing to your RRSP, and letting that money grow tax-free, vs how much you’ll pay in taxes when you withdraw the money at retirement. An RRSP is not always the best retirement vehicle for everyone. If you will have significant income at retirement due to pensions, then it may be best to invest the money outside of an RRSP