What is an RRIF and how does it work?

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by Enoch Omololu

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A Registered Retirement Income Fund (RRIF) is an extension of the RRSP. On December 31st of the year you reach age 71, you’re required to do one (or all) of three things with the funds in your RRSP:

  1. Withdraw all funds in your RRSP as cash. With this option, the entire amount withdrawn is immediately taxable by Canada Revenue Agency.
  2. Use the funds to buy an annuity. You will receive an income from this annuity for life.
  3. Convert the RRSP to an RRIF. Earnings or growth on your investment a tax-deferred status, and only become taxable following withdrawal.

RRIF vs. RRSP

There are some differences between an RRSP and a RRIF.

Contribution: Following converting your RRSP to an RRIF, you can no longer make annual contributions to the RRIF as you could with an RRSP.

Withdrawal: Withdrawals are optional for an RRSP, whereas, for an RRIF, you must make minimum annual withdrawals that are determined by the Income Tax Act and is based on your age (or the age of your spouse) and the market value of your RRIF assets at the beginning of the year.

There’s no limit to the maximum amount that can be withdrawn from an RRIF or an RRSP.

RRIF Withdrawal Rules

You are required to start withdrawing a minimum amount from your RRIF in the year after you open it.

The annual mandatory minimum amount is calculated using your age (or that of your spouse,  if preferred), the market value of your RRIF holdings on December 31 of the previous year, and a prescribed RRIF factor set by the government.

For individuals who are less than 71 years of age, the prescribed RRIF factor is calculated using the formula:

1/(90 – age)

where “age” refers to your age or that of your spouse or common-law partner at the beginning of the year.

For individuals who are 71 years of age or older, the prescribed factor was set by the Federal 2015 Budget and generally reduced to accommodate for the longer lifespan of Canadian retirees.

AgeRRIF factors (2015+)AgeRRIF factors (2015+)
Under 711/(90 – age)837.71%
715.28%848.08%
725.40%858.51%
735.53%868.99%
745.67%879.55%
755.82%8810.21%
765.98%8910.99%
776.17%9011.92%
786.36%9113.06%
796.58%9214.49%
806.82%9316.34%
817.08%9418.79%
827.38%95+20.00%

RRIF Minimum Withdrawal Example 1 (Under 71 years)

Assume Patel converted his RRSP to an RRIF in 2020 at age 65. The market value of his RRIF on December 31, 2020, was $500,000. In 2021, his minimum mandatory annual withdrawal is:

⇒ $500,000 x 1/(90-65)

⇒ $500,000 x 0.04 (4%) ⇒ $20,000 for 2021.

He must withdraw at least $20,000 from his RRIF in 2021.

RRIF Minimum Withdrawal Example 2 (71 years and older)

Let’s now assume Patel is actually 75 years old and the market value of his RRIF as of December 31, 2020, was $500,000. His minimum withdrawal amount for 2021 is:

⇒ $500,000 x 0.0582 (5.82%)

$29,100 for 2021.

In general, as you grow older, you are required to withdraw a larger percentage of your RRIF funds, increasing to 20% from age 95.

You get to decide the frequency of your RRIF withdrawals. Payments can be made monthly, quarterly, annually, and so on.

Related: A Complete Guide to Retirement Income in Canada

Understanding RRIFs - Registered Retirement Income Funds

RRIF Withdrawals and Taxes

No tax is withheld by your RRIF carrier when you withdraw the minimum amount. However, you are required to report it as income in your annual income tax return.

For withdrawals above the mandatory annual minimum payout, withholding tax is deducted at source as follows:

Excess RRIFWithholding Tax (non-Quebec resident)Withholding Tax (Quebec resident)*
Up to $5,00010%21%
$5,000 to $15,00020%26%
$15,000 +30%31%

If you are 65 years or older, you may qualify for the Pension Income Tax Credit. This means that the first $2,000 received from your RRIF is eligible for a non-refundable tax credit and federal tax savings of $300 (i.e. $2,000 x 15%).

Also Read:

RRIF Tips and Strategies

  1. The securities you can buy within an RRIF are similar to those in an RRSP including mutual funds, stocks, ETFs, bonds, GICs, etc. Depending on your age, you will generally want to have a more conservative portfolio for your RRIF since the investing time frame is shorter and you need the income.
  2. You can make withdrawals “in cash” or “in kind”. In kind withdrawals can be made if you do not need the cash. You can transfer investment assets directly to your TFSA (if you have contribution room) or other non-registered accounts. The Fair Market Value of the assets transferred is included in your income for the year.
  3. You can transfer an RRIF back to an RRSP if the RRSP is unmatured.
  4. There are tax penalties for holding a non-qualified or prohibited investment in your RRIF. The tax penalty is 50% of the investment’s fair market value at the time it was acquired. All earnings on such prohibited or non-qualified investments are also taxable.
  5. Income from RRIF withdrawals can be shared with a spouse (income-splitting) as part of a tax limiting strategy to lower the family’s overall tax burden. The transferor must be at least 65 years old.
  6. You can convert an RRSP to an RRIF at any time. You don’t have to wait until you’re 71 years of age.
  7. A spousal RRSP can also be converted into a spousal RRIF. You can elect to have your RRIF transfer to your spouse or common-law partners tax-free by designating them as “successor-annuitant.” In this case, the RRIF stays open and the surviving spouse will continue receiving payments from the fund. Alternatively, you can designate your spouse as a beneficiary – the RRIF is collapsed and the amount received can be transferred to their registered plan including RRSP (if < 71 years) or RRIF tax-deferred.
  8. You can elect to rollover your RRIF tax-free after death to the RDSP of a child or grandchild who was financially dependent on you due to a physical or mental disability.
  9. You can have more than an RRIF and deploy different investment strategies for each one.
  10. If no beneficiary is designated for your RRIF, the account is collapsed and included in the estate and tax return of the deceased in the year of death. Since the RRIF now forms part of the value of the estate, it’s included in the calculation of probate fees or taxes, resulting in higher fees.
  11. You can choose to use your RRIF assets to purchase a life annuity as you get older.
  12. Consider making one last contribution to your RRSP in the year that you turn 71 to use all and any unused contribution room that you have. This will boost your tax-deferred RRSP savings and lower your tax for the year before you become ineligible to make RRSP contributions.

Have a question about RRIFs? leave them in the comments!

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, Credit Canada, MSN Money, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

6 thoughts on “What is an RRIF and how does it work?”

  1. I just found your blog today. Great information. Looking forward to reading more of your blogs. Thanks

  2. Nice and informative article. Learned a lot of things about RRIFs. Thanks for sharing all the information.

    • You are welcome. Thanks for stopping by!

    • Regarding the loss of RRSP benefit ownership rights and age based imposition of escalating age based taxation on a RRIF or Annuity, how does this qualify as lawful under rule of law provisions included in the United Nations Universal Declaration of Human Rights, Canadian Bill of Rights, Canadian Human Rights Act, Charter of Rights and Freedoms, Taxpayer Bill of Rights and Constitution Act – 1982 s.91. The World Health Organization defines elder abuse to include financial and psychological abuse. Our Prime Minister has directed the Minister of Justice and Attorney General and Seniors Minister to determine a legal definition of elder abuse in his 2019 Mandate letters. He also directed all Ministers to defend the Canadian Charter of Rights and Freedoms. Age is a prohibited ground of discrimination. Surely age discrimination and elder abuse do not qualify as “good Government under the Constitution Act s. 91 requirements.

      Will the next phase of abuse by Canadian governments include the loss of health care benefits on the same basis?

      Call your Member of Parliament and demand an explanation of this illegal age tax activity by the Canada Revenue Agency.

  3. i am trying to figure out what portion of the RRIF withdrawl is considered “pension income”. is it just the minimum withdrawl or does it include the am’t withdrawn over the minimum???

  4. I am fast approaching the age where I will have to convert to a RRIF, so this is very useful information. It appears however that some part of your article are missing. Should there be a table following the statement:

    “For withdrawals above the mandatory annual minimum payout, withholding tax is deducted at source as follows:”

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