Understanding RRIFs

As you near age 71, there’s an important deadline you need to know about. The Federal Income Tax Act requires you to wind down all your Registered Retirement Savings Plans (RRSPs) by December 31 in the year you turn 71, otherwise, the full value of your RRSPs must be reported as taxable income on your next tax return and taxed at your highest marginal rate. The good news is that you have other options to help avoid a huge tax bill and retain your retirement savings.

The most popular RRSP transfer option is a Registered Retirement Income Fund (RRIF), which allows you to retain your current RRSP investment portfolio and continue to grow it on a tax-deferred basis. The major difference between your RRSP and a RRIF is that you are required to take a minimum payout from your RRIF each year and these payouts are taxable as income.

Here are some other things you need to know about RRIFs:

• You can convert your RRSP to a RRIF at any age but you must make the conversion no later than December 31 of the year you reach age 71.
• The minimum annual payout that you must take from a RRIF varies by the age of the owner and it is possible to use a younger spouse’s age to calculate the RRIF minimum, however once this designation has been made, it cannot be changed.
• Income splitting is available for RRIF payments made to persons who are age 65 or older – meaning that you, as the recipient of RRIF income, can allocate 50% of this income to a lower-earning spouse for tax purposes.
• Another effective tax-saving strategy involves investing the after-tax proceeds of your annual RRIF payments in a Tax-Free Savings Account (TFSA), up to the TFSA contribution maximum. You can also give your spouse funds for investment in their TFSA.

There are other tax-saving RRIF options available to you but don’t wait until the last minute to consider them. Plan now to maximize your retirement income by speaking with your professional advisor to find the right solutions for your unique situation.

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.