One of the biggest decisions you have to make with a Registered Retirement Income Fund (RRIF) is how much money you’ll take out, and when. Plan your withdrawals with care, or you may find that you pay more tax than you need to, and get less income than you could. You may also find that your savings don’t last as long.
What should I think about as I plan my withdrawals?
- What’s the minimum amount I must take out each year? The government sets that rate for everyone, based on age.
- What happens if I need to take out more than the minimum? You can take out any amount you want above the minimum withdrawal. But if you withdraw as little as possible in the early years, your RRIF savings will last longer. And, you can delay paying tax on your income.
- How will my withdrawals work? You must make your first minimum withdrawal by the end of the first year after you open your account. For example, if you open your RRIF in 2006, you have to make your first minimum withdrawal by the end of 2007. That’s the law.
- What happens if I don’t need money from my RRIF? There are ways to make your minimum withdrawal without cashing out your investments. Learn more now
- If you have a low income, a RRIF may not be the best choice for you. Get professional advice.
- There is a $2,000 pension tax credit on your withdrawals. Make sure you claim this credit each year on your tax return.
- Choose which investment(s) you will sell to make your withdrawal with care. You may pay a penalty to redeem a Guaranteed Investment Certificate (GIC) or other fixed-term deposit if you cash it in before its maturity date.
- Minimum withdrawals are lower in the early years. So, if your spouse is younger than you are, you can use their age to set the minimum withdrawal for your RRIF. You’ll pay less tax, and you’ll keep more of your money invested longer.
Remember: With proper planning, you can make your RRIF savings go farther and pay less tax.
You need to think about both the short- and long-term future. It’s true that you can change your mind later, but it’s good to have a clear sense of direction and some guidelines in place.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.