RRIFs and LRIFs

For RRSPs, you must convert it into a Registered Retirement Income Fund (RRIF) or life annuity in the year you turn 71, but you do not have to start that income in the year you turn 71. It must start in the following year. For Locked-In RRSP this same rule applies.

You might want to convert your RRPS or Locked-in RRSP before you have to. This might especially apply to the Locked-in RRSP if you want to take money from it. With the RRSP you can take funds out at any time. However, money from these funds is taxable income and there can be withholding tax taken at the time of withdrawal, depending on how much you take out.

It would seem that you can convert your locked-in RRSP to a LIF at the lessor of age 55 or at the age you could have obtained a pension from the original pension plan. There are current rules that at conversion you can transfer part of your locked-in money to an RRSP or RLIF. These rules have changed so it is best to check with your financial institution when doing to conversion to know how much you can transfer if you want to do this.

For the minimum amount you must take from an RRIF or LRIF, see document from Canada Revenue Agency. Look at item 8 as this is the one that generally applies. However, all financial institutions will tell you what you need to withdrawal each year. This will occur in January as it is based on the funds value at the end of the previous year. The Tax Tips.ca site has information on minimum withdrawals.

For LRIFs there is a maximum withdrawal amount. The maximum payment is based on the LRIF's investment earnings for the previous year. The maximum income payment will be the greater of the amount earned under the LIF formula or your LRIF's investment earnings for the previous year.

On an Ontario Government site there are FAQs on Locked-in Retirement Income Funds (LRIFs). There is a lot of information on these products on the internet, but the variety of places you can go can sometimes be bewildering. A lot of the financial institutions have information, but you usually have to provide personal information to get at their information.

I have known people who have cashed in their RRSP or their RRIF to stop their OAS from being clawed back. You can do this, but you will pay taxes on the withdrawal probably at the maximum rate.

I personally do a budget for the follow year in November. I use my previous tax program to determine what additional taxes I need to pay for the current year and ask my financial institution to pay that tax amount as the withholding tax amount. I do my withdrawals from my RRSP and LRIF once a year in December of each year.

When I changed my Locked-in RRSP to a LRIF, I just changed the account. I kept all the investments in stocks that I currently held. When I have to change my RRSP to a RRIF I plan to do the same. That is keep the current stock and other investments I have in my RRSP in my RRIF.

The blogger Retire Happy has a lot of information on his site about RRIFs.

On my other blog I am today writing about Great-West Lifeco Inc. (TSX-GWO, OTC-GWLIF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.