Registered Retirement Income Funds (RRIF)

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A Registered Retirement Income Fund (RRIF) is a registered account that is meant to provide a steady income to Canadians in their retirement. It can be considered an extension of the Registered Retirement Savings Plan (RRSP). The difference is that while you make annual contributions to an RRSP to save for your retirement, you withdraw money from your RRIF during your retirement.

In Canada, RRSP account holders can hold the account only up to the year in which they turn 71. After which, they can opt to purchase an annuity or convert the RRSP into an RRIF to generate income in their retirement. If the account holder does neither of the two, their RRSP account is cashed out in full, and the entire amount is reported as taxable income for that year. Many Canadians prefer to convert their RRSP accounts to RRIF accounts as they allow for tax-sheltered growth of their money, just like in RRSPs.

Similar to other registered accounts, an RRIF is an investment account that can be set up with a bank, credit union, trust or insurance company. While you cannot make direct contributions to this account like your RRSP, you must use funds from your RRSP or other registered pension plans, such as PRPP (Pooled Registered Pension Plan), RPP (Registered Pension Plan), DPSP (Deferred Profit Sharing Plan), and SPP (Specified Pension Plan), to fund an RRIF.

Like an RRSP, an RRIF can hold cash savings and investments, such as Guaranteed Investment Certificates (GICs), government bonds, mutual funds, Exchange-Traded Funds (ETFs), and stocks.

RRIF is a simple and straightforward tool to defer tax on your investments and generate an income in retirement. The details of how it works are explained below.

• Opening an RRIF
  

  Most Canadian banks and financial institutions offering RRSP accounts will let you transfer your RRSP investments directly to RRIF without changing their interest rates or maturity dates. You can also transfer an RRIF from one institution to another, but a fee may be associated. An RRIF is an individual account and cannot be held jointly or opened under a business or trust name. Meanwhile, an individual can set up multiple RRIFs or convert multiple RRSPs into one RRIF.

  An RRIF can be started at any age till the end of the year when you turn 71. This means that individuals can convert their RRSP (or a part of it) to RRIF at the age of 50; however, they cannot convert their RRSP to RRIF in the year they turn 72.

  It should also be noted that no contributions can be made to an RRIF once it is established. An RRIF plan terminates only through death, and there is no other way of termination.

• Withdrawing from an RRIF
  

  You can start withdrawing from your RRIF in the year that it is set up or the year after. It is mandatory to withdraw at least the minimum annual withdrawal amount every year starting from the year after which you open the RRIF. The minimum withdrawal amount is calculated every year based on the market value of your RRIF at the beginning of the year and the prescribed percentage based on your age set by the Canada Revenue Agency (CRA). This percentage goes up with your age.

  There is no maximum annual withdrawal limit, meaning you can withdraw more than the minimum requirement. The payout period of an RRIF is your entire life. You can also select the frequency of payments, i.e. monthly, quarterly, semi-annual, or annual. You can use WOWA’s RRIF calculator to plan your withdrawal based on minimum annual withdrawal, fixed annual withdrawal or payments over a fixed time period.

• Paying taxes on your RRIF withdrawals
  

  RRIF withdrawals are to be reported as income on your tax return. This means that you need to pay taxes on the amount you withdraw from your RRIF each year.

  It should also be noted that any withdrawals in excess of the minimum withdrawal requirement are subject to a tax deduction at source, which can be calculated based on the lump-sum withholding tax rates listed below.

  • 10% (5% for Quebec) on amounts up to $5,000
  • 20% (10% for Quebec) on amounts over $5,000
  • 30% (15% for Quebec) on amounts over $15,000

  The CRA emphasizes that these rates are only estimates. You can also request your payer to withhold additional tax to reduce your future tax liability.

As described earlier, it is mandatory for annuitants to withdraw at least the minimum amount from the second year of the RRIF. This minimum amount can be calculated on the basis of your RRIF’s market value and CRA’s prescribed factor as per your age. The table below shows the prescribed RRIF factors for ages 70 to 95.

Note: For ages below 70 years use formula 1/(90-age) to calculate the RRIF factor.

The RRIF minimum withdrawal table 2023 above shows that the minimum withdrawal factor increases with age. If your spouse or common-law partner is younger than you, you can opt for the minimum withdrawal to be calculated based on their age in order to lower the minimum withdrawal amount.

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As a general rule, when an RRIF annuitant dies, they are considered to have received the entire RRIF’s fair market value (FMV) immediately before their death. This amount is to be included on the annuitant’s income tax return for the year of death, along with any other withdrawals made by the annuitant in that year prior to death. The estate of the deceased annuitant is responsible for paying the income tax. The beneficiary of the RRIF will only be taxed on any increases in the RRIF value after the date of the annuitant’s death.

The exceptions where the general rule does not apply under the following conditions:

• A spouse or common-law partner is named as the successor annuitant
  

  If a surviving spouse or common-law partner is named as the successor annuitant in the RRIF contract or will of the deceased annuitant, the deceased annuitant is not considered to have received the RRIF amount at the time of death. The successor annuitant becomes the new annuitant of the RRIF, and the payouts continue to be paid out to them. The payouts after the death of the original annuitant must be reported on the successor annuitant’s income tax returns.

  If the surviving spouse or common-law partner is not designated as the successor annuitant, they can still be considered as the successor annuitant if the executor of the will consents to the same and the RRIF carrier agrees.

• Spouse or common-law partner is named the sole beneficiary of the RRIF
  

  The deceased annuitant is not considered to have received the RRIF amount upon death if they have a surviving spouse or common-law partner, and both of the following conditions are met:

  • The surviving spouse or common-law partner is named the sole beneficiary in the RRIF contract or the will.
  • The entire eligible property from the RRIF is directly transferred to the sole beneficiary’s registered retirement plan (RRSP, PRPP, SPP, or RRIF) or to an issuer for purchasing an eligible annuity for the beneficiary by December 31 of the year following the year of death.
  The transferred amount is called the ‘designated benefit’ and the surviving spouse will receive a T4RIF slip for it. The amount transferred will be reported as income on the beneficiary’s income tax and benefit return, but an official receipt for the transferred amount will offset it.

The amounts received from a deceased annuitant’s RRIF can be directly or indirectly transferred to the RRSP, RRIF, PRPP, or SPP of a qualified beneficiary (spouse, common-law partner or a dependent child/grandchild) or used to purchase an annuity for them. If the qualified beneficiary is an infirm child or grandchild, the proceeds can also be transferred to RDSP (Registered Disability Savings Plan). The transfer will allow the beneficiary to defer tax on the transferred assets.

An RRSP can be converted to an RRIF at any time till December 31 of the year in which the RRSP account holder turns 71. It should also be noted that mandatory minimum withdrawals start in the year after the RRIF was set up. This means that you will have to make minimum withdrawals from the RRIF every year, even if you have other income streams and do not need the money from your RRIF for living. Moreover, RRIF withdrawals are considered taxable income, and you will have to report the withdrawals as your income for tax purposes.

You cannot directly transfer money or investments from your RRIF to your TFSA. If you have an available TFSA contribution room, you can withdraw from your RRIF and use the withdrawn amount to contribute to your TFSA. You should note that the amount you withdraw from your RRIF will however be taxed as income. Therefore, this option may be useful only when you have withdrawn the minimum withdrawal amount from your RRIF and have unused funds from the same, along with an available TFSA contribution room. This will allow the unused funds to grow tax-free.

As a general rule, RRIF annuitants who name non-qualified beneficiaries (adult children, siblings, etc.) are considered to have received the fair market value of the entire RRIF immediately before their death. The amount is included as income on their final tax return, and their estate is responsible for paying the taxes. There are a few exceptions to this rule:

• If you have named your spouse or common-law partner as the successor annuitant of the RRIF, they will become the annuitant of the RRIF upon your death and continue to receive the RRIF payouts.
• If you have named your spouse or common-law partner as the sole beneficiary, the entire eligible amount from your RRIF can directly be transferred to their RRSP, RRIF or other permissible registered accounts upon your death or be used to purchase an annuity for them.

Many financial institutions offer the option of self-directed RRSPs and RRIFs. Self-directed RRIFs let you make decisions about where the money in your RRIF is invested, and the issuer takes care of the administrative details, such as getting the plan registered, trading securities, etc. The investments need to be qualified investments as deemed by the CRA.