What Is a RRIF?

Picture this: You've spent decades building your Registered Retirement Savings Plan (RRSP), and now retirement is approaching. Eventually, you'll need to decide how to turn those retirement savings into income.

One of the most common ways to do this is with a Registered Retirement Income Fund (RRIF).

A RRIF is a registered retirement account that allows you to continue investing your retirement savings while making withdrawals during retirement. The money remains tax-deferred inside the RRIF, but withdrawals are generally taxable as income.

RRIFs are often the next step for Canadians who have accumulated savings in an RRSP, although you do not have to wait until age 71 to convert an RRSP to a RRIF.

What Is a RRIF?

A Registered Retirement Income Fund is a registered retirement-income vehicle that is designed to provide withdrawals from retirement savings over time.

You can generally transfer your RRSP directly into a RRIF without immediately triggering tax on the transferred amount, provided the transfer is completed correctly through the financial institution.

Once you have a RRIF, the account can continue holding eligible investments. Investment income and growth are generally not taxed while they remain inside the RRIF. Instead, withdrawals are generally included in your taxable income in the year you receive them.

A RRIF therefore does not make retirement savings permanently tax-free. Rather, it continues the tax-deferred structure of an RRSP while requiring you to begin taking minimum annual payments once the applicable rules require them.

Who Needs a RRIF?

If you've been contributing to an RRSP, a RRIF may eventually become an important part of your retirement-income strategy.

• The "It's Time to Retire" Crowd: Your RRSP must mature by the end of the year you turn 71. A RRIF is one of the common ways to continue holding those savings while drawing retirement income.
• People Who Want Continued Tax Deferral: Investments can remain inside the RRIF and continue to grow without annual taxation on the investment income while it remains in the account.
• People Looking for Flexible Retirement Income: You generally control how much you withdraw, provided you take at least the required minimum once minimum withdrawals apply.

You can also establish a RRIF before age 71. Some retirees choose to do this earlier as part of a planned retirement-income and tax strategy.

When Do You Have to Convert an RRSP to a RRIF?

You cannot simply leave your own RRSP in its existing form indefinitely. Your RRSP must mature by the end of the year in which you turn 71.

Before that deadline, you generally have three main choices:

• Withdraw the money and include the taxable amount in your income;
• Transfer the RRSP directly to a RRIF; or
• Use the funds to purchase an eligible annuity.

For many retirees, transferring the RRSP to a RRIF provides a convenient way to create ongoing retirement income while maintaining control over their investments.

RRSP vs. RRIF Withdrawals

There is an important difference between taking money directly from an RRSP and receiving payments from a RRIF.

RRSP Withdrawals

When you withdraw money directly from an RRSP, your financial institution generally withholds tax at the time of the withdrawal.

For Canadian residents outside Quebec, the standard federal withholding rates are:

• 10% on amounts up to $5,000
• 20% on amounts over $5,000 up to and including $15,000
• 30% on amounts over $15,000

Quebec has different withholding rates because provincial tax is also handled through the Quebec system.

Importantly, withholding tax is not necessarily the same as the final amount of tax you owe. Your actual tax liability is determined when you file your income tax return and depends on your total income and applicable tax rates.

RRIF Withdrawals

RRIF withdrawals work differently because the government requires a minimum annual withdrawal once minimum payments apply.

No withholding tax is required on the RRIF minimum amount. If you withdraw more than the required minimum, the excess portion is generally subject to withholding tax.

This distinction can be particularly useful for retirement cash flow. For example, if your required RRIF minimum is $30,000 and you withdraw exactly $30,000, your financial institution generally does not have to withhold tax from that minimum payment.

That does not mean the $30,000 is tax-free. The full RRIF withdrawal is generally taxable income and must be reported on your tax return.

Why Does the Withholding Difference Matter?

At first glance, you might wonder why it matters whether tax is withheld when you receive the money or when you file your tax return.

The answer is cash flow.

Imagine that you need $1,000 to cover your monthly expenses. If you take $1,000 directly from an RRSP and the financial institution withholds 10%, you initially receive only $900.

With a RRIF minimum payment, no withholding is required on the minimum amount. You may therefore receive the full payment during the year and settle your actual income-tax liability when you file your return.

However, this does not eliminate the tax. It simply changes the timing of when the tax is withheld. You still need to plan for the income tax associated with your RRIF withdrawals.

How Are RRIF Minimum Withdrawals Calculated?

Once minimum withdrawals apply, the amount you must withdraw each year is based primarily on your age and the value of the RRIF at the beginning of the year.

You can generally choose to have the minimum amount calculated using your spouse's or common-law partner's age instead of your own. This election must be made when the RRIF is established and cannot generally be changed later.

Using a younger spouse's age can reduce the required minimum withdrawal and may allow more money to remain inside the RRIF for longer.

Selected RRIF Minimum Factors

Age	Minimum Factor	Approximate Minimum Withdrawal
71	5.28%	About $5,280 per $100,000
72	5.40%	About $5,400 per $100,000
73	5.53%	About $5,530 per $100,000
74	5.67%	About $5,670 per $100,000
75	5.82%	About $5,820 per $100,000
80	6.82%	About $6,820 per $100,000
85	8.51%	About $8,510 per $100,000
90	11.92%	About $11,920 per $100,000
95+	20.00%	$20,000 per $100,000

These factors apply to standard RRIFs. Your financial institution calculates the actual minimum using the applicable factor and the RRIF value at the beginning of the year.

For example, if a 71-year-old has $500,000 in a standard RRIF and the applicable factor is 5.28%, the minimum withdrawal would be approximately $26,400.

The minimum percentage increases as you get older, which means that RRIF withdrawals can become a larger part of your portfolio over time.

When Do RRIF Minimum Withdrawals Begin?

The timing can be confusing because the year you establish the RRIF matters.

If you establish a RRIF before the year you turn 71, the minimum payment generally begins in the year after the RRIF is established.

When you convert your RRSP to a RRIF in the year you turn 71, the first minimum payment generally applies in the following year, when you are 72.

This means you do not generally have to take a RRIF minimum withdrawal in the same year that you transfer your RRSP to a RRIF.

Can You Withdraw More Than the RRIF Minimum?

Yes. The RRIF minimum is a floor, not a ceiling.

You can generally withdraw more than the required minimum whenever you need additional retirement income.

However, additional withdrawals are generally taxable income, and amounts above the minimum are generally subject to withholding tax.

Taking large additional withdrawals in a single year can also push your taxable income into a higher marginal tax bracket or affect income-tested benefits such as the Old Age Security recovery tax.

This is why retirement-income planning should consider not just how much money you need, but also when you withdraw it.

Should You Convert Your RRSP to a RRIF Before Age 71?

You do not have to wait until age 71 to establish a RRIF.

Converting some or all of your RRSP to a RRIF earlier can sometimes make sense as part of a broader tax and retirement-income strategy.

Potential reasons include:

• You need retirement income before age 71.
• You want to spread taxable withdrawals over more years.
• You are currently in a relatively low marginal tax bracket.
• You want to coordinate RRIF withdrawals with CPP, OAS, pensions and other income.
• You want to deliberately draw down some registered savings before later retirement years.

There is no universal age at which everyone should begin RRIF withdrawals. The decision should be based on your retirement-income needs, tax situation and expected future income.

RRIFs and OAS Recovery Tax

One reason RRIF withdrawal timing can be important is the interaction with Old Age Security.

RRIF withdrawals are taxable income. If your income becomes high enough, additional RRIF withdrawals can contribute to an OAS recovery-tax obligation.

This does not mean RRIF withdrawals are inherently bad. It means that the timing and amount of withdrawals can matter when you are trying to manage your lifetime tax bill and government benefits.

For some retirees, deliberately withdrawing RRSP or RRIF funds earlier in retirement can reduce the size of registered accounts later in life. Whether that strategy makes sense depends on the individual's tax rates, investment returns, other income and life expectancy.

RRIF Payments and Retirement Cash Flow

One of the most important retirement-planning questions is not simply "How much do I have?" but "How much can I safely spend each year?"

A RRIF can provide a predictable source of retirement income, but the required minimum withdrawal may not match your actual spending needs.

You may need more than the minimum during the early years of retirement and less than the minimum later. This is where a complete retirement-income plan becomes useful.

Your RRIF can be coordinated with:

• CPP
• OAS
• GIS, where applicable
• Employer pensions
• TFSA withdrawals
• Non-registered investments
• Rental income
• Other retirement income sources

How Do You Actually Use a RRIF?

Once your RRIF is established, the process is relatively straightforward.

1. Open or convert to a RRIF: Transfer your RRSP directly to a RRIF through your financial institution.
2. Select your payment schedule: You can generally arrange payments monthly, quarterly, annually or according to another schedule offered by your provider.
3. Meet the minimum: Once required, you must receive at least the annual minimum amount.
4. Withdraw additional amounts if needed: You can generally take more than the minimum, subject to the applicable tax and withholding rules.
5. Manage the investments: Your RRIF can continue holding eligible investments while you receive retirement income.

What Happens to a RRIF When You Die?

RRIF estate planning is an important part of retirement planning because the tax treatment at death can be very different from simply leaving the account to an estate.

In many circumstances, the fair market value of a RRIF is included in the deceased annuitant's income for the year of death. However, special rules can allow qualifying spouses or common-law partners and certain dependent beneficiaries to receive or transfer the RRIF on a tax-deferred basis.

A qualifying surviving spouse or common-law partner may, for example, be able to transfer the RRIF proceeds directly to their own RRIF or another eligible registered plan without immediate taxation, provided the applicable conditions are met.

Because death-related RRIF taxation can be significant, beneficiary designations and estate planning should be reviewed as part of your overall retirement strategy.

RRIF vs. RRSP

Feature	RRSP	RRIF
Main purpose	Building retirement savings	Drawing retirement income
Contributions	Allowed subject to contribution room and age rules	Generally not used for new contributions
Investment growth	Tax-deferred	Tax-deferred
Required minimum withdrawal	No	Yes, once minimum withdrawals apply
Withdrawals taxable	Generally yes	Generally yes
Withholding on minimum	RRSP withdrawals generally have withholding	No withholding is required on the RRIF minimum

Common RRIF Mistakes to Avoid

1. Thinking RRIF Minimum Payments Are Tax-Free

No withholding tax does not mean no tax. RRIF withdrawals are generally taxable income, including the minimum amount.

2. Taking Large Withdrawals Without Considering Tax Brackets

A large RRIF withdrawal can increase your taxable income significantly. Consider the potential impact before taking substantial amounts beyond the minimum.

3. Ignoring OAS Recovery Tax

Higher taxable income can affect income-tested government benefits. RRIF withdrawals should therefore be considered alongside CPP, OAS and other sources of income.

4. Forgetting About the Younger-Spouse Election

If you have a younger spouse or common-law partner, choosing to base your RRIF minimum payments on their age can reduce the required annual withdrawal.

5. Waiting Until Retirement to Think About RRIFs

RRIF planning can begin well before age 71. The years between retirement and mandatory RRIF conversion can provide valuable opportunities for tax and income planning.

Fun Facts About RRIFs

Start Planning Your RRIF Income

A RRIF is much more than a mandatory destination for an RRSP. It can be an important component of a carefully designed retirement-income strategy.

The goal is not necessarily to withdraw as little as possible or as much as possible. Instead, the objective is to coordinate RRIF withdrawals with your spending needs, investment portfolio, tax brackets, CPP, OAS, pensions, TFSAs and other retirement income.

Understanding your future RRIF withdrawals before retirement can also help you determine how much you need to save today.

Ready to see how your RRSP and RRIF could fit into your overall retirement plan? Try the Retirementize retirement planning calculator to model your retirement income, taxes, savings and withdrawals.

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