Understanding the Basics - Servus Credit Union

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Indexed Life AnnuityThis increasing income option provides annuity paymentsthat either increase by 1, 2, 3 or 4% automatically eachyear, or increase based on the return of a specified groupof assets. This provides you with some protection againstinflating living costs. Choosing this option does, however,substantially reduce your payment in the early years.Are There Any Risks Involved?The RRIF and the TCA 90 are designed to repay the fullinvestment and all earnings to you or your beneficiaries.If your RRIF is invested in mutual funds or equities, youhave the risk of losses.With a life annuity, there is a risk that all of your capital andits earnings may not be repaid to you by the time paymentscease on your death. Purchase of a guaranteed period caneliminate this risk.In most provinces your investment in a credit union, bankor trust company RRIF or TCA 90 will be covered by thesame deposit insurance fund that covers RRSP deposits.Most life insurance companies are members of a consumerprotection plan which is intended to safeguard their RRIFs,or the life annuity income, should a life insurance companyfail to meet its obligations.Can You Commute Your RetirementIncome Options?A RRIF can be terminated and the full value taken in alump sum provided the funds are not invested in a nonredeemableterm, and the wording of the contract doesnot prohibit commutation. Commutable annuities can alsobe purchased. You will have to accept a lower yield ona commutable annuity in exchange for this option.The commuted value of a RRIF can be used, withouttaxation, to directly purchase an annuity. The commutedvalue of an RRSP annuity can similarly be used to investin a RRIF. This flexibility might be valuable should therebe further legislative changes in the future affecting theretirement income options.If we ever again experience extremely high yields on lifeannuities, as in 1981, having this flexibility would allow youto convert part or all of your RRIF to the high annuity yieldfor the rest of your life.UNDERSTANDING ALL THE BASICS 35
The terminated value of a RRIF in excess of the mandatoryminimum payment amount for the year can be transferreddirectly to an RRSP in your name provided you are not pastthe year in which you turn 71. This enables you to terminatethe mandatory income from a RRIF.What Happens in Case of Death?With a life annuity with no guarantee, the payments ceaseupon death. If you purchase a TCA 90 and you die beforeage 90, or if you die within the guaranteed period of asingle life annuity, payments can continue to your spousefor the remainder of the guaranteed payment period,or until his or her death.With a RRIF, your spouse, if named on the plan, cantake your place without tax consequence and make hisor her own decision on the income and payout term,or can transfer the balance to another eligible plan.If your estate or someone other than a spouse or adependent child or grandchild is the beneficiary, theremaining value at that time (with a life annuity thisis the discounted cash value of the remaining guaranteedpayments), will be paid in a lump sum to the estateor beneficiaries. This lump sum is taxable on your finaltax return.If your beneficiary is a physically or mentally handicappedchild or grandchild who was financially dependent onyou, part or all of the remaining value can be transferred,without taxation, to an RRSP, RRIF, RDSP or annuity in thechild’s or grandchild’s name, or taxed in his or her name. Ifthe beneficiary is an able-bodied child or grandchild under18 who was financially dependent on you, part or all of theremaining value can be transferred, without taxation, toa Term Annuity to Age 18, with annuity payments taxedin the child’s name over that period.If a charity is the designated beneficiary of the RRIFin the plan or Will, the charitable donations tax credit canbe extended to the estate.For LIF/LRIF/RLIF/MB RRIF/SK RRIF, the spouse is entitledto the funds on death of the annuitant; however, exceptionsmay apply. Where the spouse is not entitled, the contract istreated as a regular RRIF and the above rules would apply.36UNDERSTANDING ALL THE BASICS
Page 2 and 3: This Understanding All The Basics b
Page 4 and 5: Table of ContentsRRSPWhat is an RRS
Page 6 and 7: RRSPWhat is an RRSP?A Registered Re
Page 8 and 9: What is Earned Income?Your RRSP ded
Page 10 and 11: The greater the future benefits pro
Page 12 and 13: Part or all of your RRSP deduction
Page 14 and 15: Over-contributionsOver-contribution
Page 16 and 17: • Provincial legislation- The Alb
Page 18 and 19: Since mutual fund investments do an
Page 20 and 21: Back-End LoadInstead of a front-end
Page 22 and 23: Form T2205 is available at the Taxa
Page 24 and 25: Applying for Your Home Buyers’ Wi
Page 26 and 27: sixth year following the first with
Page 28 and 29: When Designating a Beneficiary on a
Page 30 and 31: Whatever method of designation you
Page 32 and 33: Is Retirement Income Taxable?There
Page 34 and 35: You cannot contribute directly to a
Page 36 and 37: Minimum Payment, Age More Than 77Fr
Page 38 and 39: Saskatchewan RRIF (SK RRIF)The SK R
Page 42 and 43: Who Sells Retirement Income Options
Page 44: ® HANDS & GLOBE Design is a regist

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