Discover how much you already know (or don’t know!) about RRIF rules and how this great tax-deferral opportunity can help you plan for your retirement

Like a Registered Retirement Savings Plan (RRSP), a Registered Retirement Income Fund (RRIF) can hold a range of investments. You don’t need to sell your RRSP holdings when you convert to a RRIF, if that’s the option you choose—you just transfer them.

Understanding RRIF rules will help you make better retirement investing decisions. How much do you already know about RRIF rules? Take our quiz below to find out.

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• A RRIF is used by:

1. People who don’t want to cash out their RRSP as a lump sum when they retire, and prefer to extend this tax shelter.
2. People who plan on cashing out their RRSP as soon as possible.
3. People who want to invest their money into annuities.
4. All of the above.

You are correct if you answered 1 – People who don’t want to cash out their RRSP as a lump sum when they retire, and prefer to extend this tax shelter.

“A RRIF is a tax-deferred retirement plan for your RRSP. RRIFs are used by those who don’t plan to cash out their RRSP as a lump sum when they retire, and prefer to extend their investment. Note that with a RRIF, you need to make minimum withdrawals each year according to a set schedule. Registered Retirement Income Funds offer more flexibility and tax savings than annuities or a lump-sum withdrawal.”

• A RRIF can hold:

1. Only dividend-paying stocks
2. Only ETFs
3. A range of investments
4. Only fixed-income investments

You are correct if you answered 3 – A range of investments.

“Like an RRSP, a RRIF can hold a range of investments. As mentioned, you don’t need to sell your RRSP holdings when you convert to a RRIF—you just transfer them.”

• The government requires owners of a Registered Retirement Savings Plan (RRSP) to convert it into a RRIF by:

1. January 1st of the year they turn 72.
2. December 31st of the year they turn 71 or earlier.
3. July 1st of the year they turn 67.
4. None of the above.

You are correct if you answered 2 – December 31st of the year they turn 71 or earlier.

“The government has RRIF rules that require everyone opting to convert their Registered Retirement Savings Plan into a RRIF do so by December 31st of the year they turn 71, or earlier. You start making withdrawals from your RRIF in the year following the year in which you open the RRIF. For example, if you open a RRIF in 2016, you have to make your first withdrawal by December 31, 2017.”

• Which is correct in terms of the minimum withdrawal amounts set by Revenue Canada for your RRIF:

1. 5.28% of the RRIF’s year-end value at age 71.
2. 6.82% at age 80.
3. 20% at age 95 and up.
4. All of the above.

You are correct if you answered 4 – All of the above.

“When you hold a RRIF, you must withdraw a minimum each year and report that amount for tax purposes. (You may withdraw amounts above the minimum at any time.) Revenue Canada sets your minimum withdrawal for each year according to a schedule that starts at 5.28% of the RRIF’s year-end value at age 71, reaches 6.82% at age 80, and levels off at 20% at age 95 and up.”

• When converting your RRSP to a RRIF you can get the most by:

1. Using a younger spouse’s age to set a lower minimum withdrawal.
2. Take late-in-the-year payments.
3. Withdraw shares instead of cash if you want to hang on to a holding.
4. Name a RRIF beneficiary.
5. All of the above.

You are correct if you answered 5 – All of the above.

“All these RRIF strategies will let you keep more of your money tax deferred as long as you can, as well as make sure that the RRIF transitions to your spouse or other beneficiary as smoothly as possible.”

• To prolong your RRIF tax deferral you should:

1. Take out as much as possible as soon as possible.
2. Request only one payment per year, near year-end.
3. Do not take any payments.
4. None of the above.

You are correct if you answered 2 – Request only one payment per year, near year-end.

“You can receive RRIF payments on any schedule, though most investors choose to receive them either monthly or yearly. However, unless you need monthly payments to live on, it’s best to request only one payment per year, near year-end, to prolong your tax deferral as long as possible. For practical purposes, though, set a date such as December 15 to allow for delays. Just contact the broker or institution that holds your RRIF to set up your yearly payment.

Note that when you make a RRIF withdrawal above the minimum requirement, Revenue Canada requires your financial institution to withhold tax at the time of withdrawal.”

Understand RRIF rules and use our three-part Successful Investor approach to retire with more savings

At TSI Network, we recommend using our three-part Successful Investor philosophy when investing for your retirement—including in your RRIF:

1. Invest mainly in well-established, dividend-paying companies;
2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
3. Downplay or avoid stocks in the broker/media limelight.

Do you prefer to take a year-end payout or monthly payouts on your RRIF, and why is that your preferred option?