Life Income Fund (LIF)

What Does Life Income Fund Mean?

A life income fund (LIF) is a type of registered retirement income fund (RRIF) offered in Canada that can be utilized to hold locked-in pension funds as well as different assets for a possible payout as retirement income.

A life income fund can't be removed in a lump sum. Owners must involve the fund in a way that supports retirement income for their lifetime. Every year's Income Tax Act determines the minimum and maximum withdrawal amounts for RRIFs, which envelops LIFs.

The Income Tax Act's RRIF limitations think about fund balances and an annuity factor.

Understanding Life Income Fund

Life income funds are offered by Canadian financial institutions. They give individuals an investment vehicle for managing the payouts from locked-in pension funds and different assets.

In many cases, pension assets might be held yet not open in the event that an employee leaves a firm. These assets, as a rule called locked-in assets, can be managed in other investment vehicles however may expect conversion to a life income fund when the owner is ready to begin taking withdrawals.

Life income fund payouts are determined by a government formula that applies to a wide range of RRIFs. Most provinces in Canada expect that life income fund assets be invested in a life annuity. In numerous provinces, LIF withdrawals can begin at any age as long as the income is utilized for retirement income.

When an investor begins taking LIF payouts they must monitor the minimum and maximum amounts that can be removed. These amounts are revealed in the annual Income Tax Act, which gives limitations pertaining to all RRIFs. The maximum RRIF/LIF withdrawal is the bigger of two formulas, both defined as a percentage of the total investments.

The financial institution from which the LIF is issued must give an annual statement to the LIF owner.

In view of the annual statement, the LIF owner must determine toward the beginning of each fiscal year the amount of income they might want to pull out. This must be within a defined reach to guarantee the account holds an adequate number of funds to give lifetime income to the LIF owner.

Qualified investments in a LIF include cash, mutual funds, ETFs, securities listed on a designated exchange, corporate bonds, and government bonds.

Life Income Fund (LIF) Rules

Here are a few common principles regarding a LIF:

• A life income fund maintains RRIF minimum withdrawal rules
• Withdrawals are viewed as income and are taxed at your marginal tax rate
• You can't utilize your spouse's age to determine minimum LIF payments
• You must be basically of exiting the workforce age (determined in the pension legislation) to purchase a LIF
• You must be essentially of exiting the workforce age or normal retirement date to begin receiving LIF payments
• You must begin receiving payments in the year after you turn 71
• In the event that you have a spouse, you must obtain their consent before setting up a LIF as withdrawals could impact future death benefits
• Just certain types of investments qualify in a LIF

Advantages and Disadvantages of a Life Income Fund (LIF)

Setting up a LIF enjoys several benefits:

• Like other registered products, contributions develop tax-deferred within a LIF
• LIF owners can pick their own investments (provided that the investments qualify)
• Funds within a LIF are lender secured and can't be seized to pay off debt commitments
• Contributions can develop tax-deferred until the year after you turn 71

Of course, there likewise disadvantages to setting up a LIF. They include:

• A minimum age requirement (exiting the workforce age) before being able to begin a LIF
• A minimum age requirement (exiting the workforce or normal retirement age) before being able to receive LIF payments
• Maximum withdrawal limits keep you from accessing more income when you really want it
• Just qualified investments can be held in a LIF account

Life income funds are offered by numerous institutions in Canada to support retirement distributions for investors. Below is a rundown of companies offering life income funds for certain subtleties on each organization's product.

Sun Life Financial: Offers investors different options for LIF investing including insurance guaranteed investment contracts, mutual funds, segregated fund contracts, and that's only the tip of the iceberg.

Canada Life: Allows for conversion of a registered pension plan, locked-in registered retirement savings plan, or locked-in retirement account assets. Works with payment withdrawals for retirement income.

Canadian Imperial Bank of Commerce: The Canadian Imperial Bank of Commerce offers a LIF daily interest savings account. Assists with facilitating retirement distributions. Permits investors to earn daily interest on their account investments.

Life Income Fund FAQs

At What Age Can You Withdraw Money From a LIF?

You can pull out money at 55 years of age. No withdrawals from a LIF are permitted before age 55.

Is LIF Income Taxable?

Indeed. LIF income is taxable and must be added to your annual income. On the off chance that the withdrawal is higher than the annual minimum withdrawal, taxes are withheld on the excess amount.

What Befalls a LIF When You Die?

Upon death, the balance of your LIF is paid to your spouse. In the event that your spouse denies payment or on the other hand assuming a spouse is missing, it is paid to your heirs.

Features

• You must be basically of exiting the workforce age (determined in the pension legislation) to purchase a LIF, you must be essentially of exiting the workforce age or normal retirement date to begin receiving LIF payments, and you must begin receiving payments in the year after you turn 71.
• Advantages of a LIF include the fact that contributions develop tax-deferred within a LIF, owners can pick their own investments (provided that the investments qualify), and funds within a LIF are lender secured.
• Life income funds are offered by numerous institutions in Canada.
• Life income funds are a type of retirement income vehicle utilized in Canada.
• The Canadian government directs different parts of life income funds, specifically the amounts that can be removed, which are indicated annually through the Income Tax Act's expectations for RRIFs.