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Retirement

What is a RRIF?

By the age of 71 you can roll your RRSP into a Registered Retirement Income Fund and begin taking out annual withdrawals. Learn ins and outs of the RRIF.

The Evermore Team
The Evermore Team

Feb 22, 2022

This article will explain what a Registered Retirement Income Fund (RRIF) is and the options you have when your RRSP ends including converting it to a RRIF.

By the end, you should understand more about the three options, the mandatory RRIF withdrawal rules, how RRIF tax withholdings work, the timing and nature of RRIF withdrawals, how long your RRIF will last, and finally (pun intended) , what happens to your RRIF upon death. 

 

Sections

 

What is a RRIF?

The three RRSP conversion options

Minimum RRIF withdrawal rates

Using a younger spouse’s age

Tax withholdings

Timing and nature of withdrawals

How long your RRIF will last

RRIFs on death

 

What is a RRIF?

A Registered Retirement Income Fund (RRIF) is a type of investment account registered with the Canadian government. It is an account where earnings on your investments are tax-free, and like your Registered Retirement Savings Plan (RRSP), you are only taxed on withdrawals.

Unlike your RRSP, the RRIF is not designed as an account that accepts contributions. The only way you move money into a RRIF is by transferring funds from your:

  • RRSP
  • Pooled Registered Pension Plan (PRPP)
  • Registered Pension Plan (RPP)
  • Specified Pension (SPP)
  • Other RRIF 

If your RRSP is there to help you grow your assets as your prepare for retirement, the RRIF is there for the same reason during your retirement. The main difference is that you must withdraw a specific minimum amount from your RRIF every year.

Most people start their RRIF when they must rollover their RRSP, which is one of the three RRSP conversion options.

 

The three RRSP conversion options

The latest you can have an RRSP is December 31st of the year you turn 71. By that time you have to close your RRSP and you have three options:

  • The first option is to simply withdraw all the money from your RRSP. But then you’ll have to report the whole amount on your personal income tax return which could result in a significant tax bill. That is why very few people do this. 
  • The second option is to transfer the funds in your RRSP to an insurance company and purchase a registered annuity from them. This is a promise to pay you a certain monthly amount and there are various types. The simplest is a single-life annuity that pays the amount until you die, but there are several other types and features available.
  • The third option is to rollover your RRSP into a RRIF. That essentially means the firm handling your RRSP changes the name on the account from RRSP to RRIF. All the investments inside stay the same. With a RRIF there are mandatory withdrawal amounts each year. In other words, the government requires you to take out minimum amounts each year by December 31st based on your age.

The age they use is your age at the beginning of the calendar year which is your age on December 31st of the prior calendar year. The minimum withdrawal rate is applied to the market value of the RRIF at the beginning of the current year.

Note there is one exception to RRSPs ending when you turn 71. You can contribute to a spousal RRSP up to December 31st of the year your spouse or common-law partner turns 71 years of age. A spousal RRSP is one that you contribute to but your spouse has ownership of and makes withdrawals from.

 

Minimum RRIF withdrawal rates

The Federal 2015 Budget, which received Royal Assent on June 23, 2015, reduced the minimum withdrawal factors for age 71+ for both post-1992 and pre-1993 RRIFs so all RRIFs now use the same prescribed factors.

Here is a chart of the current minimum RRIF withdrawal percentages for age 71 and older.

 

Age on January 1

Minimum RRIF withdrawal %

71

5.28%

72

5.40%

73

5.53%

74

5.67%

75

5.82%

76

5.98%

77

6.17%

78

6.36%

79

6.58%

80

6.82%

81

7.08%

82

7.38%

83

7.71%

84

8.08%

85

8.51%

86

8.99%

87

9.55%

88

10.21%

89

10.99%

90

11.92%

91

13.06%

92

14.49%

93

16.34%

94

18.79%

95 or older

20.00%

  

So for example, say you turned 71 on November 9, 2022 and the market value of your RRIF on December 31, 2022 was $100,000. You’d have to withdraw $5,280 before December 31, 2023 and report that amount as RRIF income on your tax return for 2023. That’s because you were 71 years old on December 31, 2022, so the rate is 5.28%.

Note that as you age the minimum percentage increases. If you make it to the ripe old age of 95, 20% of the opening value of your RRIF needs to be withdrawn each year from then on.

 

Using a younger spouse’s age

Note that you can base the minimum RRIF withdrawals on either your age, or your spouse’s (or common-law partner’s) age. The trick here is that you only get one chance to do this. It is upon opening the RRIF. Your RRSP administrator should ask if you would like to base the withdrawals on your own age or your spouse’s age, but sometimes they don’t, so make sure you do.

The best decision is to base the minimum RRIF withdrawals on whomever is younger, you or your spouse. That gives you the lowest minimum withdrawal and therefore the most flexibility. Remember, you can always take out more than the minimum.

Which brings up an obvious point: what if your spouse is under age 71?

Well, there is a separate table for people up to age 70 and it is based on a simple formula as follows: 1/(90-age)

So for someone aged 70, the ratio is 5.00% because (1/(90-70) = 1/20 = 5.00%.

Here is the table up to age 70.

 

Age on January 1

Minimum RRIF withdrawal %

55

2.86%

56

2.94%

57

3.03%

58

3.13%

59

3.23%

60

3.33%

61

3.45%

62

3.57%

63

3.70%

64

3.85%

65

4.00%

66

4.17%

67

4.35%

68

4.55%

69

4.76%

70

5.00%

  

Let’s look at a simple example. Say you were 71 on December 31, 2022 but your spouse was only 62, and the value of your RRIF was $500,000 at that time. The minimum RRIF withdrawal during 2023 based on your own age would be $26,400 ($500,000 x 5.28%). But the minimum RRIF withdrawal based on your younger spouse’s age would only be $17,850 ($500,000 x 3.57%), a difference of $8,550.

In reality, many people need more than the minimum RRIF withdrawals to meet their spending requirements, so for them the minimum RRIF withdrawal rules are irrelevant. But even these people might as well use the youngest age for the calculations. That’s because it leaves the most amount of flexibility. For example, maybe there is an inheritance which means they no longer need more than the minimum. Or perhaps they sell their principal residence and downsize freeing up tax-free cash to pay the bills.

If you have more than one RRIF, the minimum withdrawal amount is calculated separately for each account. If more than the minimum is withdrawn from one RRIF, it doesn't reduce the amount that must be withdrawn from another RRIF of the same holder.

 

Tax withholdings

No tax is withheld from the minimum amounts withdrawn from a RRIF, however withholding tax is taken off of excess RRIF withdrawals at the following rates:

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

The withholding amount is normally computed on the excess portion of each individual lump sum payment. However, if withdrawals are made as monthly instalments to fulfill a single request of the RRIF holder, it is CRA's position that the rate of withholding on each individual payment should be based on the total sum requested and not on each individual payment. In other words, the excess portion will be subject to withholding at the rate that would apply if the amount was received as one lump-sum payment in the year equal to the amount by which the total instalment payments in the year exceed the minimum amount.

Since no tax is withheld at source on the minimum amount, taxpayers are required to pay the tax attributable to such payments no later than April 30 of the year following the year in which they were received, unless they are required to make instalment payments.

 

Timing and nature of withdrawals

When you establish a RRIF, you can usually specify to the financial institution the timing of the minimum withdrawal. It can be taken out as a lump sum in one withdrawal or in monthly payments.

Note that RRIF withdrawals can also be made “in kind.” In other words you can take out the investments intact rather than having to convert them to cash to withdraw. To do this, the investments would need to be transferred to a non-registered account, or a tax-free savings account (TFSA), subject to the amount of TFSA contribution room available. The TFSA or non-registered account would have to be in the same account holder name as the RRIF for this to be allowed.

 

How long your RRIF will last

How long your RRIF will last depends on the rate of return that the investments within it make and the amounts that you withdraw. For example, if the rate of return you make each year equaled the minimum withdrawal percentages, the RRIF would last your lifetime and you would still be left with the original amount invested upon your death. If you withdraw much more than the rate of return each year, you will be eating into your original capital and risk running out of funds before the end of your life.

 

RRIFs on death

If someone with a RRIF dies, the value of the RRIF at the date of death is included in the income of the deceased for the final tax return from January 1 to the date of death. However, income tax may be deferred if there is a beneficiary that is either the spouse or common-law partner, a financially dependent child or grandchild under 18 years of age, or a financially dependent mentally or physically infirm child or grandchild of any age. 

The Evermore Team

We all deserve to feel confident about our finances. Evermore is here to make sensible investing accessible to everybody.

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