Retire with confidence with a Registered Retirement Income Fund (RRIF)

An RRSP is a great way of saving for retirement, but it must be converted into an income generating account, such as a RRIF or an annuity by December 31 of the year you turn 71. Otherwise, it becomes de-registered and the financial institution (your RRSP carrier) will pay out the full balance in cash, which will be treated as income in that year and also be subject to withholding tax. RRIFs are a great way to help generate a stable income in your retirement years, while your investments can continue to grow on tax-deferred basis until withdrawn. You can transfer funds to your RRIF account from an RRSP or any other retirement savings plan including a Pooled Registered Pension Plan (PRPP), from another RRIF, or from a First Home Savings Account (FHSA).

Payments are withdrawn from your RRIF and provided to you on a schedule tailored to you. You decide how much to withdraw, provided minimum annual withdrawal requirements are met. Plus, additional payments can be requested at any time. However, any withdrawals in excess of Annual Minimum Payments (AMP) will be subject to withholding tax. Similar to an RRSP, savings and investments held within your RRIF can continue to grow on a tax-deferred basis while held within your RRIF. However, you can use a RRIF to only make withdrawals and no deposits.

RRIFs can be set up with different financial institutions, or “carriers”, including banks, insurance companies, credit unions or trusts. The carrier makes stipulated income payments to you on a monthly, quarterly, semi-annual, or annual basis depending on your plan. 

You need to withdraw a minimum percentage of the total value of your RRIF each year. The specific percentage you need to withdraw will depend on your age and will increase as you get older. As a result, someone in their 80s will need to withdraw a higher percentage of their RRIF each year than someone in their 70s. 

You can also use your spouse’s or partner’s age to calculate your minimum withdrawal amounts. If your spouse is younger, using their age will lower your minimum annual withdrawal amounts. This can be a great option for retirees who don’t need the additional income and would rather maintain the value of their RRIF. However, you should be aware that the decision to use your spouse’s age to calculate minimum withdrawal amounts cannot be reversed. If you would like to set-up your own age or make any changes in future, then you may have to open a new account and transfer funds to the new RRIF.

Follow these simple steps to set up your RRIF.

Step 1: Choose your carrier

It’s often easiest to use the same bank or financial institution that holds your RRSP. This usually lets you transfer your existing RRSP investments directly into your RRIF. In many cases, your existing financial institution will automatically help you open a RRIF prior to your 71^st year. If you have more than one RRSP, consider consolidating them all into the same RRIF.

Step 2: Apply for a RRIF

You’ll need to apply for a new RRIF. The application process can be straightforward, and your financial institution may even prepare it for you.

Step 3: Choose a Beneficiary

In the event of your death, spouses and other qualified beneficiaries such as children or grandchildren may receive the remaining balance of your RRIF tax free. You can choose other beneficiaries, but they’ll have to pay taxes on any funds they receive. The value of your RRIF can also be added to your estate and paid out in accordance with your will.

Step 4: Choose a Withdrawal Schedule

You need to start making withdrawals the first year after you open it. You can choose to have payments made to you monthly, quarterly, semi-annually or annually, depending on what works best for you. Additional payments can be requested at any time.

Is it mandatory to open a RRIF account?

If you have savings in an RRSP or other registered pension plans, then you must convert it to an income option (RRIF or annuity) by the end of the year you turn 71. You may choose to direct your funds to an annuity or a RRIF.

At what age do I have to withdraw from my RRIF?

You need to start making withdrawals from your RRIF before the end of the year you turn 72. 

Can I transfer money from a RRIF to a TFSA? 

Funds withdrawn from your RRIF can be contributed to a TFSA provided you have room to make additional TFSA contributions. 

What happens when a RRIF holder dies?

When the RRIF holder dies, the fair market value of all property held within the RRIF is treated as income paid to the RRIF owner immediately before their death. As a result, the income received from the RRIF must be claimed on the owner’s last income tax return. The beneficiary listed on the RRIF can transfer any funds received into an RRSP, a RRIF, a Pooled Registered Pension Plan (PRPP) or a Specified Pension Plan (SPP). The beneficiary may also use the funds to buy an eligible annuity.

Do beneficiaries pay tax on a RRIF?

Subject to certain exceptions, beneficiaries won’t have to pay tax on funds if the funds were included in the deceased person’s income.

What percentage of a RRIF must be withdrawn each year?

The percentage of a RRIF that must be withdrawn each year depends on your age. As you get older, the percentage you’re required to withdraw goes up. For example, someone who is 71 will need to withdraw 5.28% while someone who is 80 will need to withdrawal 6.82%. These percentages are set by the federal government and are subject to change. Visit the Canada Revenue Agency website to find the percentage that applies to you.

What is the first year of RRIF withdrawal?

You must start making withdrawals from your RRIF in the year after you first open it. You don’t need to make any RRIF withdrawals in the year you first open your RRIF.