What is an RRIF and how does it work?
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The quickest and easiest way to properly utilize and access your Registered Retirement Savings Plan or RRSP is with a Registered Retirement Income Fund or RRIF.
Did you know that you can roll your RRSP directly into an RRIF account in order to receive payments to support your lifestyle after retirement?
This guide will outline how RRIFs work, how to convert an RRSP to an RRIF, how to calculate RRIF minimum withdrawals, what happens to an RRIF when the owner dies, the RRIF withholding tax rates, and how they can provide stable and consistent income during retirement.
What is an RRIF?
RRIF stands for Registered Retirement Income Fund. It is a retirement fund that pays when owners of a Registered Retirement Savings Plan or RRSP, as well as other accounts, convert their savings into an RRIF so that they can create consistent and reliable retirement income.
RRIFs are accounts that are registered by the Canadian government between an individual and a financial carrier such as an insurance company, trust or bank. The account holder can then transfer assets into their RRIF by rolling over their funds from an RRSP by the age of 71. This RRSP to RRIF rollover protects against high taxes on an individual's retirement funds to make sure they receive the full benefits of their savings. Rolling over an RRSP into RRIF is one of three options for an RRSP. The alternatives are closing the RRSP to buy an annuity or taking it as a lump sum.
If they choose to take their RRSP as a lump sum they will be charged a withholding tax. This is why creating an RRIF or purchasing an annuity is beneficial to saving money and contributing to your retirement.
After their RRIF is set up they will be required to withdraw a yearly minimum calculated based on their age. If rolling over an RRSP this must be done by the age of 71.
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How does an RRIF work?
An RRIF is a retirement fund an individual may open from their closed RRSP with insurance companies, trust companies or banks. After the RRIF is created they will be paid a minimum amount each year, which will be based on their age and the value of the RRIF. You must create your RRIF by December 31st of the year you turn 71. Each year they will be paid a minimum amount but can take out more if needed or desired.
If you would like to know your base monthly payments as well as how much an individual can take out, you can use an RRIF withdrawal calculator or an RRIF withdrawal formula to calculate that figure.
Remember that the minimum is based on the individual's age and increases with age.
What is the minimum withdrawal from an RRIF for 2024?
The RRIF minimum withdrawal rate ranges from 4.00% to 20.00% in 2022 depending on one’s age. It is 4.00% for 65-year-olds and increased to 20% for those 95 years old or older You can create an RRIF before the age of 65 but there is no advantage in converting your RRSP to an RRIF before that age. For more details on RRIF minimum withdrawal refer to the RRIF withdrawal table below.
| Age At the Start of the Calendar Year | Minimum RRIF Withdrawal Percentage 2022 |
|---|---|
| 65 | 4.00% |
| 66 | 4.17% |
| 67 | 4.35% |
| 68 | 4.55% |
| 69 | 4.76% |
| 70 | 5.00% |
| 71 | 5.28% |
| 72 | 5.40% |
| 73 | 5.53% |
| 74 | 5.67% |
| 75 | 5.82% |
| 76 | 5.98% |
| 77 | 6.17% |
| 78 | 6.36% |
| 79 | 6.58% |
| 80 | 6.82% |
| 81 | 7.08% |
| 82 | 7.38% |
| 83 | 7.71% |
| 84 | 8.08% |
| 85 | 8.51% |
| 86 | 8.99% |
| 87 | 9.55% |
| 88 | 10.21% |
| 89 | 10.99% |
| 90 | 11.92% |
| 91 | 13.06% |
| 92 | 14.49% |
| 93 | 16.34% |
| 94 | 18.79% |
| 95 and up | 20.00% |
To calculate your minimum RRIF withdrawal, multiply the total account value by the percentage next to your age.
In this example, we assume Eric has $500,000 saved in his RRIF and is 78 years old:
| RRIF Minimum Withdrawal | Amount |
|---|---|
| Account Value | $500,000 |
| Minimum RRIF Withdrawal Percentage | 6.36% |
| Minimum RRIF Withdrawal for 2022 | $31,800 |
So, in this example, Eric is 78, and he must withdraw a minimum of 6.36% of his $500,000 balance. And to learn his minimum withdrawal amount he multiplies 0.0636 by $500,000 to get $31,800.
To get your own withdrawal amount substitute for your account balance and use the RRIF withdrawal table to find your minimum withdrawal percentage for 2022.
The RRIF minimum withdrawal rates for 2023 have not yet been announced, but the rates were not changed between 2021 and 2022, so it is unclear if they will change or stay the same for the upcoming calendar year.
What are the new RRIF withdrawal rates?
In March 2020 the Canadian Federal Government reduced the minimum withdrawal rates for RRIFs by 25%.
This was a temporary reduction that only applied to the 2020 calendar tax year. In both 2021 and 2022, the usual withdrawal requirements applied. The new RRIF withdrawal rates for 2023 have not yet been announced.
What happens to your RRIF when you die?
When an account holder of an RRIF passes away the remainder is distributed to beneficiaries or declared as part of the deceased estate. This depends mainly on if the account holder named a beneficiary prior to death.
If the deceased did not name a beneficiary, the RRIF will be calculated in the probate fees on the estate and will be included as income for the year's tax return. Any beneficiaries of the estate will then receive the remaining balance after the taxes and fees are paid. This usually results in less money than if transferred directly to a beneficiary.
If the deceased did name a beneficiary the RRIF will be excluded in the calculation of probate fees on the estate. In specific situations they will not have to include the RRIFs value on the deceased's tax return and will not have to pay income tax, this happens when the beneficiaries are:
- Spouse;
- Child under 18;
- Grandchild under 18;
- Financially dependent child or grandchild of any age who is infirm.
Good to know
Remember, a beneficiary is a person or organization chosen to inherit the money of someone who dies. This includes RRIFs and other types of assets.
At what age do I have to withdraw from my RRIF?
The latest age you can start to withdraw from an RRIF account is 71. There is no minimum age to create an RRIF, but it is most beneficial to maintain an RRSP until at least 65 to ensure that your RRIF will cover the full length of your retirement.
Based on the RRIF rules and the minimum RRIF withdrawal rates most RRIF accounts will be depleted around the age of 98.
What is the tax rate on RRIF withdrawals?
The RRIF withholding tax depends on the amount of the withdrawals. This ranges from 10% to 30%. Please see the table below for more details.
| Amount Withdrawn | Withholding Tax Rate |
|---|---|
| Up to $5,000 | 10% |
| Between $5,000 and $1,500 | 20% |
| Greater than $15,000 | 30% |
This makes it so that it can be beneficial to take out the minimum RRIF withdrawal as you will pay lower taxes allowing the money already in the account to go further.
You can also avoid paying taxes if instead of withdrawing the amount as cash you transfer it to a non-registered account or TFSA. This is known as an in-kind withdrawal and should only be done if you do not depend on the RRIF withdrawal payments to live.
A good financial advisor can help save you on taxes on RRIF withdrawals.
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When does an RRSP convert to an RRIF?
There are strict RRSP withdrawal rules that go into effect at age 71. You must either withdraw the funds and pay a withholding tax or convert your RRSP to an RRIF or an annuity by December 31st of the year you turn 71. If you do neither then the entirety of your RRSP will be treated as income and will be taxed as such.
Keep in mind that after transferring money from RRSP to RRIF you can no longer make contributions to your own RRSP. You must also start withdrawing your minimum withdrawal amount from the new RRIF account.
