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Investments

 

Registered Plans
 
REGISTERED RETIREMENT SAVINGS PLAN (RRSPs)

A Registered Retirement Savings Plan is one of the best ways to achieve your goal of financial security for your retirement. It allows you to save money for your retirement while deferring taxes on the plan contributions and earnings.

  • An RRSP is a tax-efficient retirement savings plan registered with the government. Each year, you can invest up to a set maximum amount of money in your RRSP, which is based upon your previous year's income.
  • As a result of their RRSP contribution, many people receive a tax refund.
  • The money within your RRSP grows tax-sheltered and the proceeds will not be taxed until you begin to withdraw funds from the plan.

 

LOCKED IN RETIREMENT ACCOUNT (LIRAs)

A Locked In Retirement Account provides an investment alternative to former employees of a company that has a registered pension plan. The individuals fully vested pension benefits are transferred to a LIRA. These monies can be compromised of:

  • Employer contributions to the pension plan on behalf of an employee
  • Employee contributions to the pension plan
  • a combination of the above

Pension plans provide you with an income once you have retired. The monies you transfer out of a pension plan upon employment termination must still be used to provide for a retirement income. Even though you have investment control of the funds, the governing legislation controls the use of the funds.

Locked-In savings plans (LRSPs/LIRAs) must be converted to a locked-in income plan by December 31st of the year you turn age 69. Withdrawals are not allowed from an LRSP/LIRA, except in very exceptional circumstances, and there is a maximum amount that can be withdrawn each year from a LIF/LRIF.

RETIREMENT INCOME FUND (RIFs)

A Registered Retirement Income Fund allows funds transferred from an RRSP to remain tax-sheltered while continuing to earn tax deferred income, as long as those funds remain in your RRIF. RIFs have become a popular alternative to annuities because planholders have more control over their investments and withdrawals.

While you can convert your RRSP savings into a retirement income option anytime before you reach age 69, it is mandatory that you convert all your RRSPs by December 31st in the year you turn age 69.

Benefits of a RIFs

  • Control how your money is invested
  • Investment growth is tax-sheltered until the money is withdrawn, when it is taxed as income.
  • Maximize tax deferral opportunities 

LIFE INCOME FUND (LIFs)

A Life Income Fund is one of the two options available to Registered Pension Plan (RPP) holders for income payout. The other option is a unisex annuity. A LIF is similar to a Registered Retirement Income Fund (RIF) which is used as a flexible payout option for Registered Retirement Savings Plan (RRSP) holders.

The use of a LIF usually unlocks Registered Pension Plan funds after age 55, allowing the holder to receive a stream of income. The choice of a LIF does not preclude the holder from taking advantage of rolling the remaining lump sum of money in the LIF into a unisex annuity at some future time.

Income Payments

The government legislates the minimum annual withdrawal limit. It also legislates the maximum annual withdrawal limit. Unlike a RRIF, a LIF cannot be commuted or cashed-out. Income payments may be paid monthly, quarterly, semi-annually or annually.

After age 71, the minimum LIF payment is based on a factor provided by the federal government.

Alternatively, the LIF allows you to calculate the minimum payment based on your spouse's age, if your spouse is younger. You must decide upon this option when you establish your LIF.

Maximum Payment

The maximum payment that can be taken in a year is also legislated by the government and expressed as a percentage of the fund at the beginning of the year. It is calculated using the interest rate obtained on long term Government of Canada bonds.

Flexibility

LIFs offer limited flexibility in your stream of income. You may opt for a minimum payment schedule, a maximum payment schedule, or a level stream of payments providing they do not exceed the maximum limit.

 

 
 
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