What is a Registered Retirement Income Fund (RRIF)?
A Registered Retirement Income Fund, also known as a RRIF, is a registered plan that you transfer funds into from a Registered Retirement Savings Plan (RRSP) , with the purpose of receiving periodic income in retirement.
Like the Registered Retirement Savings Plan, the RRIF is a tax-sheltered account.
Your income grows tax free in a RRIF, and you only pay taxes when you receive income from the plan.
How Does a RRIF Work?
Think of a RRIF as a continuation of your RRSP after you retire.
The RRIF is a tax-advantaged retirement payout plan.
A Registered Retirement Income Fund pays out money you contributed to your RRSP during your active years of employment.
Similar to an RRSP, you can set up a RRIF with a bank, credit union, trust, or insurance company.
If you prefer to manage your investments in a Registered Retirement Income Fund, you can open a self-directed RRIF.
When you convert your RRSP to a RRIF in the year you turn 71, or earlier — if you wish, your investment assets are transferred to the fund.
The investment assets in your RRIF must be allowable investments such as stocks, bonds, Guaranteed Investment Certificates and Exchange Traded Funds (ETFs).
If you purchase non-qualified investment assets, the CRA will impose a tax that is equal to 50 percent of the fair market value (FMV) of your investment.
In the year you turn 71, you must withdraw the money from your RRSP.
When you withdraw a lump sum amount from your RRSP, the Canada Revenue Agency (CRA) will tax your withdrawal.
You can transfer your RRSP investments to a RRIF or purchase an annuity contract to avoid taxes.
The following year after you open a RRIF, you must receive a minimum annual income from the fund.
Your RRIF carrier will calculate the minimum annual income you receive based on your age or your spouse/common-law partner’s age, if you elect to do so.
RRIF Withdrawal Rules
When receiving income from a RRIF, you cannot withdraw less than the determined minimum amount, but you can withdraw an amount that is higher than the minimum amount.
You must report the income from your RRIF in your income tax return and pay taxes on the income.
If you withdraw more than the minimum RRIF annual amount, your RRIF issuer will withhold and remit the applicable taxes directly to the CRA.
Your minimum withdrawal amount depends on your age and changes as you get older.
You can elect to have the minimum RRIF withdrawal amount calculated on your spouse or common-law partner’s age.
Converting Your RRSP to RRIF
When you transfer the money in your Registered Retirement Savings Plan to a Registered Retirement Income Fund, your RRSP provider will not withhold tax.
Your RRSP provider will need to do the RRIF transfer on your behalf.
After converting your RRSP to a RRIF, you cannot make contributions to the plan.
Your RRIF will operate like your RRSP, the major difference is you cannot keep contributing to the RRIF.
You can invest in similar assets and earn tax-free returns on your investments, provided the money remains in the RRIF.
As noted earlier, you can convert your Registered Retirement Savings Plan to a Registered Retirement Income Fund at any time, but you must do this conversion by the year you turn 71.
You must receive payments from the RRIF in the following year after registering the fund.
Frequently Asked Questions
- When should you convert your RRSP to a RRIF?
You can transfer the assets in your Registered Retirement Savings Plan to a Registered Retirement Income Fund anytime. However, you must convert your RRSP to a RRIF or purchase an annuity in the year you turn 71, or you would have to withdraw a lump sum and pay taxes.
- How much do you have to take from your RRIF?
There is a minimum annual amount you must take from your RRIF. This amount is determined based on your age and the amount in your Registered Retirement Income Fund. You can withdraw a higher amount above the limit. However, your RRIF issuer will withhold taxes on the withdrawal.