Retirement income plus tax-sheltered growth
If you have an RRSP and/or locked-in savings that came from a pension plan, you have to make a choice about what to do with that money by December 31 of the year in which you turn 71. While you may take out your RRSP money in cash, taxes can make that a very expensive choice. And locked-in money must be used for retirement income except in very special circumstances.
That leaves 2 choices. Buying an annuity is one option for all or a portion of your savings. An alternative option is to transfer your money to another registered product that will pay you a regular stream of retirement income while keeping the balance of your savings in a tax-deferred investment.
Types of retirement income vehicles or options:
- A registered retirement income fund (RRIF) is a way for you to use your RRSP savings to generate retirement income while keeping the balance of your registered savings invested in a tax-deferred plan.
- While you are required to make a minimum withdrawal each year, there are no other limits on withdrawals and the balance of your savings can continue to grow tax free (until withdrawn).
- A life income fund (LIF) or locked-in retirement income fund (LRIF, RLIF, PRIF) is like a RRIF, but is for money that originally came from a pension plan. The funds are held in either a locked-in retirement account (LIRA) or a locked-in RRSP and then converted to a LIF.
- While different provinces have different rules, both LIFs and LRIFs have both minimum and maximum annual withdrawal amounts.
Invest in a RRIF or LIF
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