What is a RRIF and how does it work?

RRIF stands for Registered Retirement Income Fund. As the name implies, its purpose is to turn RRSP funds into income flow. RRSPs must mature by December 31^st of the year in which you reach age 71, you have then 3 options: (1) Withdrawing the total investment (subject to tax), (2) purchase an annuity or (3) transfer the funds into a RRIF.

When an RRSP is rolled into a RRIF, no taxes are payable on the transferred funds. Tax is generally only payable on amounts actually withdrawn from a RRIF, allowing the remaining assets to continue to grow on a tax-deferred basis.

RRIF abide by CRA rules just as RRPS do. Based on certain parameters such as your age, CRA sets a minimum amount that you have to withdraw annually from your RIF (amount you will be taxed on) but there is not maximum limit to what you can draw.

The other interesting part is that there is NO minimum age limitation on when you can turn an RRSP into a RRIF.

This means that you can transfer your RRSPs into RRIFs anytime and that if you find yourself in a long term cash flow shortage, turning your RRSP into RRIF is certainly an option to consider. Investing into a RRSP can mean retiring earlier since your RRSP can allow you to draw income until your employment pension plan or your CPP is available and still benefit from the tax deferral.

If you find yourself facing long term disability, a RRIF not only allows you some cash flow for living but can also help fulfill your debt payments and protect your credit rating.

Let’s not forget that RRSPs are meant to be used at retirement or at a time where your income is significantly lower but, should not be used as a rainy day fund. Withdrawing from your RRSP on a regular basis defeats all of the benefits, such as the long term, tax sheltered interest compounding effect.

Talk to your Grandview Credit Union Investment Specialist to set up a plan that

makes sense for you.

See our website at www.grandviewcu.mb.ca for details.

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