Understanding Registered Retirement Income Funds (RRIFs)

If you’re not comfortable relying on a government or workplace pension plan to fully finance your retirement, you’re not alone. In fact, about two thirds of Canadians are contributing to Registered Retirement Savings Plans (RRSPs) to supplement their anticipated Canada Pension Plan, Old Age Security, and company pension benefits during their retirement years.

When those golden years arrive, you’ll be required to shift from saving mode into withdrawal mode. That’s where Registered Retirement Income Funds (RRIFs) come in. Let’s take a closer look.

What is a RRIF?

Popular with Canadians, a RRIF is a federally registered account designed to provide you with a steady income at retirement by drawing from your hard-earned savings and investments.

A RRIF is like an extension of your registered savings plans. For example, your RRSP might be used to save for your retirement while your RRIF is designed to provide you with retirement income. Like an RRSP or other registered savings plan, a RRIF offers multiple investment options, allows for tax–deferred growth of qualified investments, and funds are taxable as income when withdrawn. You cannot make contributions to a RRIF.

Converting a RRIF

You may convert funds from your RRSP into a RRIF any time you wish, but you must transfer all your registered plan savings into a retirement income option by December 31 of the year in which you turn 71. When that time comes, you must collapse your registered savings plans such as RRSPs, LIRAs or pension plans and consider these options:

1. Take the full value of your RRSP as a taxable, lump-sum payment
2. Purchase an annuity that guarantees a fixed income (not available through RBC Direct Investing)
3. Transfer your investments into a Registered Retirement Income fund (RRIF)

You may also choose a combination of these three options.

Spousal RRIFs

When a spousal RRSP plan is converted to a RRIF, it becomes a spousal RRIF where withdrawals are made by the annuitant (not the spouse who contributed to the RRSP). If you’ve contributed to a spousal RRSP in the year or in either of the two preceding taxation years of the RRIF withdrawal, be aware that there may be income attribution back to the contributing spouse. This would be the case if the annuitant withdraws more than the minimum annual withdrawal amount for the year.

Key Features of RRIFs

RRIFs are a popular and flexible choice for investors looking to convert their RRSPs as they provide:

• Income. Subject to a minimum annual withdrawal amount determined by the Canada Revenue Agency (CRA), RRIFs can be structured to provide a regular stream of income
• Flexibility. The main benefit of a RRIF is that it provides you with flexibility in establishing an income stream during your retirement. You can choose to receive payments monthly, quarterly, semi-annually or annually, and the funds can be deposited into your RBC Direct Investing account, your RBC Royal Bank account, or to an account at another financial institution.
  
  If there is an unused portion of the funds you withdrew from your RRIF, you may choose to contribute the money to a TFSA (if you have the contribution room) to continue the tax-free growth of your investments. You cannot move your RRIF payments directly into a TFSA, or redeposit them to a RRIF. You also can have more than one RRIF account.
• Tax-deferred Growth. RRIFs allow your remaining retirement savings to stay invested and continue to grow on a tax-deferred basis until withdrawn.

Income Withdrawals

Have a RRIF account at RBC Direct Investing but you’re not sure what your minimum withdrawal is? At the top of your Holdings page, a RRIF Details link takes you where you need to go to view your minimum withdrawal requirements and payment details.

There are two key decisions to make with regard to withdrawing income from your RRIF:

• How much do you need to take out and when?
  The federal government sets the minimum amount that must be withdrawn every year and it’s based on your age and the dollar value of your RRIF at the start of the year. While there is no minimum payment required in the year you’ve converted to a RRIF, you must start withdrawing from your account in the year after you open it. Visit www.canada.ca for more information on RRIF withdrawals.
  
  Next, determine the payment frequency that best meets your needs — monthly, quarterly, semi-annually or annually — and choose the investments you'll want to have your income payments taken from.
  
  
• Do you have enough income to support your dreams in retirement?
  When considering your retirement income, calculate the minimum payment you must withdraw from your RRIF each year and identify additional sources of income to meet your income needs, if necessary.
  
  You can keep the balance of your RRIF invested, allowing your account to grow on a tax-deferred basis until your income is withdrawn, though it’s a best practice to ensure the funds are available in cash at the time the withdrawal goes through.

Some Notes on Withdrawals

• All withdrawals are fully taxable.
• There is a minimum but no maximum withdrawal limits for RRIFs (see Withholding Taxes below), unless they are locked-in, such as a LRIF or LIF.
• Required annual minimum payments generally increase as you get older.
• In addition to cash, withdrawals can also be made in “in kind” – meaning securities can be withdrawn at their fair market value. You'll have to include the value of the withdrawal as income at tax time – but if you don't need the money, you have the option to contribute the securities in-kind from a non-registered account to your TFSA without selling them (if you have the contribution room) to benefit from tax-free growth. Note that there can be no direct transfers (cash or securities) from a RRIF into a TFSA.
• If you have a younger spouse, you can use your spouse’s age to calculate your minimum withdrawal amounts, which should be less, with correspondingly lower income taxes payable on the withdrawals. You don’t have to have a Spousal RRIF in place to set this up but you must call 1-800-769-2560 or send us a secure message to advise us of this strategy before your first payment.
• To reduce your household’s overall tax bill, you can split your RRIF income with your spouse which can be particularly advantageous if your spouse is in a lower tax bracket. The transferor is required to be 65 or over and can allocate up to 50% of their RRIF income to their spouse (both have to be Canadian residents). Sources of pension income other than RRIFs are also eligible.
• If you have more than one RRIF account, you must withdraw at least the minimum annual amount from each of your accounts.
• You’ll have to pay withholding tax only if you take out more money from your RRIF than the government-prescribed annual minimum amount. This also applies if you withdraw securities in-kind and the value of these investments exceeds the minimum annual amount. Withholding tax rates differ depending on your province of residence.

To open a RRIF

Ready to convert your RRSP or pension funds into a self-directed RRIF? Great! Click here to access the online application.

Have questions? Check out RRIF FAQs.

The information provided in this article is for general purposes only and does not constitute personal financial or tax advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.