Registered Retirement Income Fund (RRIF)
Registered retirement income funds are tax-deferred plans that pay out on ‘collapsed’ (i.e. transferred) Registered Retirement Savings Plan (RRSP) assets over a number of years. The customer has control over the payout schedule and continues to choose the investment strategy. The assets in the RRIF continue to grow tax-deferred.
You can take any level of income, but you MUST take at least the minimum level of income from an RRIF (i.e. you cannot decide to take no income at all).
Before age 71, the minimum income payment per annum is calculated as:
- (Value of RRIF at start of year) divided by (90 minus age at start of year)
So for example, if you are aged 62 and the RRIF value is $500,000, the minimum annual income for that year would be:
- SUM($500,000 / (90 – 62)) = $17,857 (or 3.57%)
After age 71, the minimum RRIF payment is based on a factor provided by the federal government.
What happens at death?
The customer can decide on a beneficiary in the event of death. If this is someone other than your spouse, the value of the RRIF will be added to your income for the year of death and be subject to personal income tax. If your spouse is the beneficiary, the lump sum value of the RRIF is passed to them and retains its tax-deferred status. It may then be reinvested in another registered vehicle such as an RRSP (if your spouse is under age 69), annuity or RRIF. Alternatively, you can designate your spouse as a successor annuitant, so the RRIF carries on as it was set up, but your spouse receives the income instead. There are no new investment choices to make and the RRIF retains all rate guarantees. You can set up this option when the RRIF is set up.
An RRIF is essentially an RRSP in reverse. The contributions made into the RRSP grew on a tax-deferred basis. Income received from the RRIF is taxed as income in the year received. An RRIF allows you to receive lump sum payments at any time and these will also be taxed based on your total income in that year. The RRIF provider is required to deduct and submit appropriate taxes to Canada Revenue Agency and, if applicable, to Revenu Quebec for all RRIF payments that exceed the minimum payout.
You can have as many RRIFs as you want
You can have as many RRIFs as you want. You can have one that pays a level income for the next 5 years to bridge income until government benefits. You can have another that is a capital preservation RRIF for a more stable long term level of income. With a single RRIF, you can easily manage investments and only have to worry about one minimum withdrawal. Several RRIFs require more time and effort, and require at least the minimum from each one.
With an RRIF, there are no guarantees that the fund will generate an income for life. It is possible to exhaust the fund and therefore have no further funds available to provide an income.
Minimum and maximum age
There is no minimum age to qualify for a RRIF. An RRSP must be converted to either a RRIF or an annuity at age 71.