Question

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question # 21: bob retired three years ago and is now in need of income. he has a registered retirement savings plan (rrsp) and a locked - in retirement account (lira). when he asks his advisor, laura, for help, she tells him that he needs to open both a registered retirement income fund (rrif) and a life income fund (lif). he asks laura what the difference is between a rrif and a lif. what will laura tell him?
a) a lif has both minimum and maximum withdrawal restrictions, while a rrif has only a minimum withdrawal restriction.
b) a rrif has both minimum and maximum withdrawal restrictions, while a lif has only a minimum withdrawal restriction.
c) both a lif and a rrif have maximum and minimum withdrawal restrictions, but the minimum withdrawal restriction for a rrif is higher than for a lif.
d) both have minimum withdrawal restrictions, but the money in a rrif must be completely withdrawn by the age of 85.
your answer
× both a lif and a rrif have maximum and minimum withdrawal restrictions, but the minimum withdrawal restriction for a rrif is higher than for a lif.
rationale: a life income fund (lif) is a type of retirement plan investors may transfer their pension into if they leave a pension plan. minimum and maximum income amounts each year in retirement are subject to the pension laws of the province that apply to the lif and the amounts in the plan. from a tax point of view, a lif is a rrif, for which additional rules flowing from pension benefits legislation apply. a rrif has only minimum withdrawal restrictions.
ref: 2.7.6

Explanation:

To solve this, we analyze each option using the given rationale:

• Option a: The rationale states LIF is subject to pension laws (so has min and max withdrawal restrictions) and RRIF has only minimum withdrawal restrictions. This matches.
• Option b: Contradicts the rationale (RRIF has no max withdrawal restrictions).
• Option c: RRIF has no max withdrawal restrictions, so this is wrong.
• Option d: The rationale doesn't mention RRIF money must be withdrawn by 85, so this is incorrect.

Answer:

a) A LIF has both minimum and maximum withdrawal restrictions, while a RRIF has only a minimum withdrawal restriction.