What is a RRIF?
A Registered Retirement Income Fund (RRIF) is an account designed to provide retirees with a source of income after they have retired. Usually a RRIF is comprised of the funds that roll over from an RRSP, as an RRSP cannot be kept after the age of 71. The capital and interest in a RRIF accumulates tax-free, but is subject to tax upon withdrawal. Persons with an RRIF can withdraw any amount of money from the fund at any time, but any amount over the minimum will be subject to various degrees of withholding tax. The funds in a RRIF can only be sourced from another RRIF, an RRSP or another pension plan.

What Funds can make up an RRIF?
RRIFs can be comprised of multiple types of investments such as mutual funds, GICs, stocks, and simple annuities. Since the 2005 budget, there are no limitations on foreign content in an RRIF. Many banks recommend an account with laddered GICs, where one matures every year, but while these present guaranteed safety, they do not provide a large enough growth of capital for many investors.

What is the Advantage of a RRIF?
The interest in a RRIF is allowed to grow tax free. Because the capital in a RRIF is almost entirely made up of rolled-over RRSP funds that have not been taxed, withdrawals from a RRIF are taxed as income. However, once in retirement, the beneficiary is most likely in a lower tax bracket. Furthermore, it is possible to calculate the minimum withdrawal amount according to the age of the beneficiary’s spouse, which is desirable if the beneficiary’s spouse is younger, and thus eligible for lower minimums. Lower minimums are desirable when the beneficiary has other accumulated funds to live off of, and wants to maintain the funds in his RRIF.

What are some Risks Associated with RRIFs?
Because an RRIF is designed to provide a regular source of income, quickly withdrawing funds is difficult. Any funds withdrawn beyond the minimum withdrawal amount (see calendar below) are subject to withholding tax. If you are in a position where it is quite possible that you will require a large portion of the capital in your RRIF all at once, an RRIF may be undesirable unless other, non-RRIF funds are in your portfolio.

Can a RRIF be taken out before age 71?
Yes. An RRIF can be started as early as 55. Starting at age 65, the beneficiary can withdraw $2,000 tax-free dollars each year until age 71 if they are not receiving any pension income.

How do RRIF Payouts Work?
RRIF payments have a minimum value that is calculated as a percentage of the total value of the RRIF, with a percentage that increases with age (see chart below), for example, at age 72, the minimum withdrawal amount is 5.26% of the total value, while at age 94+, the minimum withdrawal is raised 20%. This is why it is desirable to use a younger spouse’s age, as more money can be left in the RRIF for your heirs. RRIF payments are counted as taxable income.
Pension Income Deduction
-The first $2000 of pension income is tax-deductible, which can be used to counteract some of the tax burden from the RRIF withdrawals if there is no other corporate pension income.

Are there Penalties for exceeding the Minimum Withdrawal Amount?
Yes. While withdrawal amounts are calculated by percentage, the withholding tax penalty amounts are calculated by dollar amount exceeded. Up to $5000 over the minimum is subject to a 10% tax, between $5000 and $15000 at 20% and any amount above $15000 at a rate of 30%. Quebec residents have a different tax scheme.

Varieties of Retirement Plans?
There are several alternatives to a standard RRIF, including LIFs, LRIFs, and PRIFs. An LIF is a Life Income Fund, an LRIF is a Locked-in Retirement Income Fund and a PRIF is a Prescribed Retirement Income Fund. LIFs were instituted due to demand from ex-pension-holders who wanted a more flexible alternative to the life annuity. PRIFs are only available to Saskatchewan residents and are similar to a standard RRIF. LRIFs and LIFs are available to people with a Locked-in RRSP or LIRA, and these work like regular RRIFs for tax purposes.

Different Types of RRIFs
The funds in a RRIF can either be organized into a single annuity with a regular rate of return, or into multiple segmented investments that can be diversified. A segmented fund is usually sponsored by an insurance or mutual fund firm. The advantage that a segmented fund has over an annuity is a greater growth potential, but as with any investment, with potential growth comes more risk.

What Type of RRIF does Campbell & Lee Manage?
Campbell & Lee offer segregated investments, tailored to our clients individual investment situations. With our investment experience, we can create a portfolio that has exposure to lucrative sectors while minimizing risk by investing in a core of high-income investment. We can tailor a RRIF to be aggressive in the early years of retirement, and like our RESPs, we can lock in gained value by switching to a more conservative position later.

How does an LRIF work?
A locked-in RRSP rolls over into a locked-in RRIF. In addition to minimum withdrawals, a locked-in RIF also has a cap on annual withdrawal amounts.

How would withdrawals work at Campbell & Lee?
Campbell and Lee will schedule your minimum withdrawal amount at a date and mode of transfer (cheque, wire) of your choosing. Annually, monthly or weekly, Campbell & Lee can transfer funds from your RRIF to you at your convenience.

What about Spousal RRSP’s, do they carry over to spousal RRIF’s ?
Yes, a spousal RRSP will become a spousal RRIF. In a spousal RRIF, if money is contributed by the beneficiary’s partner, within the first three years after that contribution, any withholding tax will be subject to the contributor’s tax bracket, not the beneficiary’s. After three years, the money will be taxed according to the beneficiary’s bracket. Furthermore, if the contributor is over 71 and their spouse is young enough to still have an RSP, then they may make contributions to that RSP until it is time to convert it into a RIF.

Quick Advice
-If you are in the highest tax bracket, and the minimum RRIF payments are more than you need, consider using them to pay the interest cost on an investment loan. If this strategy can be employed for many years, the returns can be quite substantial.
- Consider taking out a Life Insurance policy to help cover the costs (taxes) of the transfer of your estate to your heirs. In turn, use of an investment loan or aggressive equity strategy can help cover the costs of the insurance.
-Always consult your accountant before making any plans for your retirement savings.

Additional information can be found at these sites:

http://www.cra-arc.gc.ca/tax/registered/budget2007-e.html -Updates brought with 2007 budget
http://www.cra-arc.gc.ca/E/pub/tp/ic78-18r6/README.html (PDF on page)
General Information