RRIF: What is a Registered Retirement Income Fund

 

RRIF strategy

RRIF (Registered Retirement Income Fund) is a retirement income vehicle established by the Canadian government. The funds come from an RRSP (Registered Retirement Savings Plan) and are used to withdraw retirement income gradually after retirement.

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1. Purpose of a RRIF

An RRSP is used during your working years to save and defer taxes, while a RRIF is used during retirement to withdraw money and continue tax deferral. After retirement, RRSPs cannot be kept indefinitely. The government requires that by the end of the year you turn 71, your RRSP must be converted into one of the following:

• RRIF (most common)

• Annuity

• Withdraw everything at once and pay taxes

Most people choose to convert their RRSP to a RRIF because it offers flexibility (compared to an annuity) and tax deferral (compared to a lump-sum withdrawal).

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2. Basic Features of a RRIF

1. No new contributions allowed
   Once established, a RRIF cannot receive new contributions. You can only withdraw funds.

2. Mandatory annual withdrawals
   The government sets a minimum withdrawal percentage, which increases with age. The calculation is based on the RRIF balance as of January 1 each year. Examples:

   Age	Minimum Withdrawal %
   56	1%
   60	2.5%
   71	5.28%
   80	6.82%
   90	11.92%
   95	20%

   Withdrawals are considered taxable income for the year.

3. No maximum withdrawal limit
   While there is a minimum withdrawal, there is no upper limit. You can withdraw more at any time, but the extra amount will be subject to income tax. (Note: LIF accounts do have maximum withdrawal limits.)

4. Continued investment growth
   Assets in a RRIF can continue to be invested in stocks, bonds, mutual funds, etc., just like in an RRSP. Growth within a RRIF remains tax-deferred until withdrawn.

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3. How to Set Up a RRIF

1. Open a RRIF account at a financial institution.

2. Transfer RRSP assets directly to the RRIF (no immediate tax triggered).

3. Set up a withdrawal plan (monthly, quarterly, or yearly).

4. Start withdrawing income and report it for taxes.

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4. Tax Treatment Overview

• All withdrawals from a RRIF are treated as ordinary income and are subject to personal income tax.

• Amounts exceeding the minimum withdrawal may have withholding tax, which varies by amount.

• If your spouse is younger, you can base your minimum withdrawal on their age to reduce tax.

• Income splitting between spouses is possible during tax filing, subject to age restrictions and specific conditions.

• For those over 65, up to CAD 2,000 of RRIF withdrawals may qualify for a tax credit (federal 15%, provincial varies).

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5. Example of RRIF Withdrawal

Suppose John is 73 years old at the start of the year, and his RRIF balance on December 31 of the previous year was CAD 400,000.

• The minimum withdrawal percentage at age 73 is 5.53%, so the minimum withdrawal for the year is:

  $$400,000 \times 5.53\% = 22,120 \text{ CAD}$$
  

• John can withdraw CAD 22,120, or transfer the equivalent securities from the RRIF to a non-registered account or TFSA (if contribution room is available). Since this does not exceed the minimum, no withholding tax is applied.

• If John withdraws CAD 30,000, the amount within the minimum (22,120) is not subject to withholding tax, but the extra 7,880 CAD is taxed at the time of withdrawal.

• All RRIF withdrawals are reported as income in the following year’s tax return.

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6. RRIF Variants: LIF and LRIF

If funds come from a locked-in retirement account (e.g., LIRA), they must be transferred to a similar retirement income vehicle, such as:

• LIF (Life Income Fund)

• LRIF (Locked-in Retirement Income Fund)

These accounts have both minimum and maximum withdrawal limits. They serve a similar purpose but with stricter rules.

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Summary

RRIFs are an essential part of Canada’s retirement system, offering:

• Tax-deferred growth

• Flexible withdrawals

• Investment growth potential

A RRIF forms a core component of retirement income, alongside government pensions (CPP, OAS) and other personal savings (company pensions, LIA withdrawals, TFSA, non-registered accounts).

When setting up a RRIF, it’s important to consider:

• Life expectancy

• Spending plan

• Overall tax impact

• Estate planning

Proper planning ensures a flexible withdrawal strategy and helps secure your retirement lifestyle. Understanding and using a RRIF wisely can make a significant difference in retirement quality—plan early, retire worry-free.