Life income funds (LIFs) are tax-deferred plans that pay out your registered pension plan, locked-in RRSP or locked-in retirement account assets over a number of years. With a LIF, you control your investment options but payments are determined by a government formula. In most provinces, you must buy a life annuity with the assets remaining in the LIF by the end of the year in which you reach age 80. Life income funds are available in all provinces except Prince Edward Island and Saskatchewan.
The Canada Revenue Agency legislates the minimum annual withdrawal limit. The maximum annual withdrawal limit is determined by the applicable pension legislation. Unlike a RRIF, a LIF cannot be commuted or cashed-out under most circumstances. Income payments may be paid monthly, quarterly, semi-annually or annually.
The maximum income payment that can be taken in a year is legislated by applicable pension legislation.
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.
With a LIF, you retain control of your savings and remain actively involved in all investment decisions. Canada Life offers guaranteed interest accounts and segregated funds similar to those offered through your group plan.
All LIF payments are taxed as income in the year in which they are received. Canada Life deducts and remits a withholding tax to Canada Revenue Agency and, if applicable, to Revenu Québec, for any withdrawal above the minimum pay out amount.
A beneficiary is a person who will receive your assets when you die. You can nominate more than one beneficiary. There may be some restrictions on your LIF and LRIF accounts, as pension legislation dictates such funds be provided to your spouse should you have one.