When it’s time to shift from saving for retirement to funding your retirement with your savings, many questions crop up about Registered Retirement Income Funds (RRIFs).
Two of the most common?
- How much do I need to take out of my RRIF each year?
- How often should I receive my RRIF payments?
First off, the government determines the minimum amount you must withdraw annually from your RRIF. You can find the latest mandated withdrawal rates here. On the second point, that’s up to you…and depends in part on how you prefer to budget. You can choose monthly, quarterly, semi-annual or annual withdrawals. You can also request an unscheduled withdrawal.
Once you’ve got a handle on how much and when, here are five key things to know about RRIF withdrawals:
- You aren’t required to make a RRIF withdrawal in the first year your account is opened. You have until the end of the following year to make your first withdrawal
- All withdrawals are included in your income for the year and are taxable at your marginal income tax rate
- If you have more than one RRIF account, you must withdraw at least the minimum annual amount from each of your accounts
- You can choose “in-kind” RRIF withdrawals — this means you can withdraw securities at their fair market value (without selling them) to help meet the annual minimum withdrawal requirement
- Withholding taxes will apply to withdrawals of cash and/or in-kind securities that exceed your annual minimum amount.
And if you don’t need the money?
If you don’t need any or part of your minimum annual payments right away, you may choose to keep your money invested outside of your RRIF. For instance, you can:
- Deposit excess cash or securities in-kind to a non-registered account
- If you have the contribution room, you can contribute to a registered account, such as a TFSA, to benefit from tax-free growth (NOTE: If you’d like to make a contribution to a TFSA or other registered account, you must first deposit cash or securities into a non-registered account. There can be no direct transfers from a RRIF)
And of course, aside from your annual minimum withdrawals, the rest of your RRIF investments (your nest egg) can continue to grow on a tax-deferred basis. Remember, you can’t make contributions to a RRIF, only withdrawals. To learn more, check out more information on RRIF’s.
Note: this article was first posted by RBC Direct Investing in Inspired Investor. You can find more information about Smart Investing on the Inspired Investor Page.