Understanding RRIFs - The basics

January 4, 2016

Generate a steady, predictable stream of retirement income with RRIFs.

A Registered Retirement Income Fund (RRIF) is a bit like a Registered Retirement Savings Plan (RRSP) in reverse. With an RRSP, you accumulate tax-deferred savings to fund your retirement, while RRIF generates a taxable retirement income stream from these savings. In other words, you make tax-deductible contributions to an RRSP and receive taxable income withdrawals from a RRIF.

RRIF basics

You don’t make contributions to a RRIF. Instead, you open a RRIF by transferring money from your RRSP. It’s still a registered account, so your investment earnings remain tax-sheltered until you start to withdraw money. As well, a RRIF can typically hold all of the same types of investments as your RRSP.

You can roll your RRSP into a RRIF at any time, but you don’t have to until the end of the year in which you turn 71. Similarly, you can start taking withdrawals from your RRIF as soon as the account is set up, but you must start taking out an annual minimum payment by December 31 of the year following the year the RRIF was established, and each year thereafter. For example, if you open a RRIF in August 2015, you must make your first withdrawal on or before December 31, 2016. Your financial advisor can help you determine when the best time to open a RRIF is based on your individual circumstances.

Annual minimum withdrawals

The annual minimum withdrawal amount is calculated by multiplying the market value of your RRIF on December 31 of the previous year by a percentage set by the government, which increases with your age.

If your spouse is younger than you, you can use their age to calculate the annual minimum amount. The lower the age, the lower the minimum amount and the less income tax you’ll pay on the withdrawals. This could be a good strategy if you have other sources of income and want to leave money in your RRIF for as long as possible.

For example, some government benefits, like Old Age Security (OAS), are based on income levels. If your retirement income is too high because of your RRIF withdrawals, you risk receiving lower OAS payments.

Click here for a table that shows the current minimum withdrawal amounts depending on your age.

How withdrawals are taxed

Income tax is payable on any money you withdraw from your RRIF, including the minimum withdrawal amount. Anything you withdraw that exceeds the minimum withdrawal amount is also subject to a withholding tax, which is withheld at the time of withdrawal. In most provinces, the following withholding tax rates are used:

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

Here’s an example: Your annual minimum withdrawal is $2,400 and you withdraw $1,000 per month. That’s $12,000 per year, so you’ve exceeded the minimum withdrawal amount by $9,600, on which you’ll pay a 20% withholding tax.

To learn more about how a RRIF can provide a reliable income stream during retirement, speak to an advisor or visit AGF.com/RRIF.

The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

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