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5 facts you should know about RIFs


Published: 06/22/2015

by Marcus Johnson

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If you're nearing retirement and have been building a savings nest egg in RSPs, then it's important to understand what you'll need to do to begin drawing out that money. To continue saving tax on the withdrawals, for example, find out about converting your RSPs into Retirement Income Funds, or RIFs.

Showing us how it all works, Silvio Stroescu, the managing director of deposits and investments at Tangerine, shares five important facts about RIFs:

1. Age 71 is the RSP cut-off - By the end of the year you turn 71, you're legally required to close your RSP and convert it to a form of income. Since withdrawals from RSPs are taxable, rather than paying the tax to fully cash them out, many people prefer to withdraw the income (and pay the associated tax) gradually. A RIF is essentially the next step after RSPs, turning your retirement savings into retirement income.

2. Minimum withdrawals – RIFs are designed to provide you with a regular flow of income to supplement other income you may receive during retirement. Every year you're required to withdraw a minimum amount, as set by the government, and those withdrawals are treated as taxable income. Any withdrawals beyond the minimum annual amount are subject to withholding tax.

3. Money in your RIF grows tax-free until withdrawn - Similar to an RSP, interest or earnings in a RIF account are not taxable while the money is in the plan. So what you don't withdraw can keep growing until you need it. If you're converting an RSP savings account, you'll want to look for a RIF savings account that will pay you a fair interest rate. For example, Tangerine is currently offering 1.5% on RIF Savings Accounts with no fees or services charges for as long as you save with them.

4. You don't have to wait until you're 71 to convert your RSPs - Although designed to be done as you near retirement, you can convert your RSPs to RIFs at any time. In fact, the younger you are, the less you're required to withdraw as income each year. Just remember that the mandatory minimum amounts are deemed to be taxable income.

5. You can still invest with RIFs – With a RIF you still have the option to invest your money. You can withdraw the income you need for a comfortable retirement while also continuing to grow your investments tax-free in your RIF. Look for a fund with low management fees, so you keep more money in your portfolio to grow.

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