Understanding RRIF’s

Registered Retirement Income Funds (RRIFs) are an investment vehicle that is designed to payout the assets you’ve accumulated in your saving years. RRIFs are essentially a continuation of your RRSP except instead of being used to accumulate funds they are used to start paying out funds. 

What You Need to Know

1. How Do RRIFs Work?

At age 71, Canadians are legally required to convert their RRSPs to a RRIF and start drawing on their savings.  There is no limit on how much money you can withdraw from your RRIF, which makes it different from locked in payout vehicles (i.e. Pension money), but there is a minimum amount that must be taken every year.   While you must convert your RRSP to a RRIF by the age of 71, it is possible to convert it before age 71.  

Regardless of the age a RRIF is established, a minimum payment must be made before the end of the next year.  For example, if you opened a RRIF in September of 2019, you would be required to take a payment by December 31, 2020. 

All withdrawals from RRIFs are considered to be taxable income.   Minimum RRIF withdrawals are not subject to withholding tax, but anything above the minimum will be subject to withholding tax. The withholding amounts are as follows:

  • 10% up to $5000
  • 20% $5000 to $15,000
  • 30% over $15,000

It is not possible to contribute to a RRIF.

2. Payments

As noted above, there is no maximum withdrawal limit for RRIFs.  The minimum payment is calculated every year based on your age.  The calculation is different for individuals that are 71 and older than for individuals under 71. It is also possible to use your spouses age in calculating RRIF payments.  However, once this election is made it cannot be changed from year to year.

Over Age 71

The RRIF minimum is calculated by multiplying the market value of the RRIF by the prescribed factor based on the account holders age.  For example, if the account holder was 73 years old their prescribed factor would be .0553. If they had 350,000 in their RRIF, the minimum payment would be calculated as follows:

                        .0553 x 350,000=$19,355 minimum payment

The account holder has to take $19,355 out of their RRIF that year and include it in their taxable income.  Anything they take out beyond that is subject to withholding tax.

Under Age 71

RRIF payments are calculated differently for individuals under the age of 71.   The prescribed factor is calculated as follows:  1/ (90 minus Account Holders Age).

For example, RRIF owner was 67 years old and had $350,000 in their RRIF.  The minimum payment would be calculated as follows: 

                        (1/(90-67)) x $350,000= $15,217.39 minimum payment.

The account holder would have to take at least $15,217.39 out of their RRIF that year and include it in their taxable income.  Anything they take out beyond that is subject to withholding tax. 

3. Spousal RRIFs

It is possible to contribute to a spousal RRSP after age 71 if your spouse is still under 71. Spousal RRSPs must be converted to RRIFs at the spousal account holders age 71.   Spousal RRIFs work much the same as individual RRIFs however it is important to be aware of the attribution rules that are imposed on these accounts.  The minimum amount may be withdrawn from a Spousal RRIF and taxed to the spousal account holder’s name.  However, anything above and beyond the minimum amount will be taxed back to the contributing spouse if he/she made contributions to the RRSP within 3 years of converting it to a RRIF.

4. Other Considerations

  • It is possible to withdraw from more than one RRIF as long as the totals add up to the RRIF minimum.  
  • You do not need to specify the minimum amount every year.   Your financial institution should calculate this for you on a yearly basis.  You do have the option to receive payments monthly, quarterly, semi-annually, or yearly.
  • Assets held in a RRIF continue to grow tax free until they are withdrawn.
  • RRIFs offer the same investment options as RRSPs

The Bottom Line

It is important to have a well-planned withdrawal strategy to ensure you are maximizing your retirement income and taking advantage of any tax planning strategies available to you.  Your advisor can help you ensure you withdrawing from your RRIF in the most efficient way possible.

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This information is designed to educate and inform you of financial strategies and products currently available. As each individual’s circumstances differ, it is important to review the suitability of these concepts for your particular needs with a Qualified Financial Advisor.