Segregated Funds in Your RRIF

John Beaton

Tel: (604) 535-2404
Toll Free: 1-800-667-8818

The following describes a Registered Retirement Income Fund and the recommendation to use segregated funds as part or all of this kind of registered investment. Commonly referred to as a RRIF, a Registered Retirement Income Fund is one of the three options available to Registered Retirement Savings Plan (RRSP) holders to convert their tax sheltered savings into taxable income. The other two options are, to purchase an annuity or, simply cash in your RRSP and pay the income taxes owed all in one lump sum.

The RRIF is a flexible payout of the lump sum of money which you have accumulated in your Registered Retirement Savings Plan [RRSP]. It is almost the opposite of an RRSP, in that you made deposits to your RRSP based on your income and with a RRIF you make withdrawals based on your age. The payments made to you from a RRIF are taxable, but your investments in a RRIF continue to grow tax free until they are withdrawn.

You may have as many different RRIFs as your wish and you may transfer capital from one RRIF to another RRIF or a new RRIF at any time. If you transfer capital to a new RRIF, you will be expected to withdraw at least the minimum payment for that year if you haven't already done so. If you transfer capital from your current RRIF to a qualifying RRIF that offers the Guaranteed Lifetime Withdrawal Benefit, it is possible for you to benefit from a 5% notional bonus in the new RRIF in the year that you make the transfer.

When you convert your RRSP into a RRIF, you are not required to withdraw any payments in that first year, although you may do so if you wish. You will be required to withdraw at least the minimum payment for the following year by the end of that year. You may recieve your payments from your RRIF deposited directly to your bank account monthly, quarterly or annually. The only restriction is that the minimum annual payment must be recieved by you before the end of the following year. If you don't choose a RRIF or annuity by the end of the year in which you become 71 years of age, the financial institution that holds your RRSP may simply cash it in and send you the cash less any income taxes which must be witheld. The total value of your cashed in RRSP would be added to your income for the year of withdrawal.

RRIF IDEA TO INCREASE INVESTMENT INCOME - If you are currently receiving income from a RRIF, you could pick up an extra 5% income for one year by transferring your RRIF to a qualifying RRIF that offers a Guaranteed Minimum Lifetime Withdrawal Benefit. When a person transfers a RRIF from one institution to another, the previoud institution pays out a RRIF payment for the current year. The new institution doesn't make a payment until the following year. This means, that under the contract provisions offered by the new RRIF provider, you would qualify for a full 5% bonus on all of the RRIF funds received by them in the year in which you do not take a withdrawal. This roll over of RRIF funds can take place anytime up until a RRIF holder's age 80

If you are trying to minimize the amount of payment you take out of your RRIF you might consider basing your payments on the age of a younger spouse. The rules allow basing minimum RRIF payments on the age of either spouse. Consider also that upon your death, any unused portion of your RRIF can be rolled over to your surviving spouse without tax implications. Your spouse will continue receiving regular taxable payments as you did.

You do not have to be 71 years of age to convert your RRSP into a RRIF. If you have an RRSP, there is no minimum age at which you are restricted to converting it. If you do not have any other pension income, you may consider at least enough of your RRSP savings into a RRIF to generate $1,000 a year in RRIF income which will qualify for the senior's pension income credit. A senior's pension income credit applies to the first $1000 of pension RRIF or annuity income. [The Canada Pension Plan doesn't apply] Remember that you are required to decide the type of investments held inside a RRIF. Segregated funds in the form of Guaranteed Minimum Lifetime Withdrawal Benefits are recommended for at least part of your RRIF investments.

Subject to the applicable death and maturity guarantees, any part of the premium or other amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value according to fluctuations in the market value of the assets in the segregated fund.

Segregated Funds are only available to Canadian residents. Persons resident or located in other countries are not eligible to purchase these products or associated services. Within Canada, the information on this web site is not intended to be construed as an offer to sell any insurance products in the province of Quebec.

Beaton Insurance Services
15310 Pacific Avenue
White Rock, British Columbia, Canada V4B 1P9
Tel: 604-535-2404
Toll Free Canada: 1-800-667-8818
Web site: http://www.aftertaxes.bc.ca
E-mail: john@aftertaxes.bc.ca