Registered Retirement Income Fund (RRIF) 

 A registered retirement income fund (RRIF) is an arrangement between you and a financial institution (an Insurance Company, a Trust Company, Bank, Investment Dealer) that is registered with CRA and able to offer RRIF accounts. You transfer property using the government prescribed process to your RRIF carrier from an RRSP, a PRPP, an RPP, an SPP, or from another RRIF.  

The minimum amount must be paid to you in the year following the year the RRIF is established. This is called a Minimum Annual Payment (MAP) and is determined by your age on December 31^st of the previous year in which payments are made. (In our Resources Section we have a complete Guide to Minimum and Maximum Annual payout percentages for all Registered Income products in Canada.) The actual required payment is the calculation of the MAP percentage x the December 31^st account value. i.e., 12/31 Account Value = $1,000,000; Age at 12/31 = 71 MAP @ 71 = 5.28% ($1,000,000 x 5.28% = $52,800) 

Like an RRSP, earnings in a RRIF are tax-free, and amounts paid out of a RRIF are taxable on receipt. 

You can have more than one RRIF and you can have  self-directed RRIFs. The rules that apply to self-directed RRIFs are generally the same as those for RRSPs. Prior to your age 71 you can simultaneously have both a RRIF and an RRSP. If your income needs are modest, you could choose to receive income from part of your RRSP savings by establishing a RRIF with part of your RRSP total. The above referenced MAP requirements may influence the amount of RRSP money you convert to a RRIF. 

If you have a spouse or common-law-partner as defined by CRA and they are younger than you, you can elect to use their age as the qualifying age to determine the MAP. i.e., you are 71 and your spouse is 65. MAP at age 71 is 5.28% versus age 65 @4.00%. This may impact the longevity of RRIF investment.  The lower the payout percentage the lower the inherent risk. Post your age 65, RRIF income can be split with your spouse or common-law-partner for tax purposes.  

Taxation of RRIF income is unique and is impacted by the timing of setting up your RRIF and when you initiate income. If you set up a RIFF and receive income in the same calendar year, your entire income is subject to a withdrawal taxation formula. 10% on the 1^st $5,000; 20% on the next $10,000 and 30% on everything above $15,000. In Quebec the required percentage is exactly ½ at each income increment. Incremental withdrawals will be assessed on the total amount for the year and taxed at the maximum level commensurate with this total. At 30% this tax rate is onerous and only those earning in excess of $148,780 of total taxable income in a year would exceed this 30% on an average tax payable basis.   

If you establish your RRIF in the previous year and initiate income in the current year the taxation rules offer greater flexibility. For income amounts up to the MAP required payment, you do not have to have at source tax withheld. Income Tax must be withheld for amounts in excess of the MAP and are taxed using the lump-sum withholding tax rates. Generally, tax planning would suggest having tax withheld commensurate with your overall average tax rate at source. 

If you have named your spouse or common-law-partner your beneficiary, then the RRIF account rolls over into their name. If they are not named and you either leave it to your estate or your children, you effectively take the entire account value into income and pay the tax rate commensurate with your total income for that year of death. Please check beneficiary designations with your financial institutions. It’s a little detail that can needlessly cost substantial amounts of tax and lost income.