These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
Registered Retirement Income Funds (RRIF) are a popular tax effective solution to withdraw/wind down RRSP. Monies withdrawn from RRSP are considered taxable income and taxed accordingly. All RRSP must be collapsed/terminated by the end of the year the account holder turns 71. If you’ve accumulated a sizeable RRSP account, a one-time withdrawal would result in a significant income tax bill. RRIF are an alternate solution to spread out and reduce the income tax liability of terminating RRSP.
Much like RRSP, and TFSA, income (interest, dividend, capital gains) accumulate within a RRIF without tax. A minimum amount of funds must be withdrawn from the RRIF annually (see schedule for amounts). The minimal amount increases over time. Withdrawals are taxed as income. You can withdraw amounts in excess of the minimums, but all amounts are taxed as income. Amounts withdrawn in addition to the minimums are subject to withholding taxes ranging from 10 % – 30% depending on the amount withdrawn. Withdrawals can be taken monthly, quarterly or annually.
While most people will convert their RRSP to a RRIF at age 71 or when they require retirement income, you can convert RRSP proceeds to a RRIF account earlier. It is best to discuss which withdrawal strategies make most sense with an investment specialist to minimize income taxes in retirement. Combining RRIF withdrawals with private pension entitlements, CCP and OAS income is critical to minimizing long term and income taxes in retirement.
There are number of online calculator sites that have withdrawal minimal schedules, and here is a CRA link for a source of information: Consult with an investment specialist or Financial Planner for guidance regarding best investment options that suit your family situation and risk tolerance and for effective tax minimization strategies.
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