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What is an RRIF?
A Registered Retirement Income Fund (RRIF) is an investment account that allows you to receive income from the savings you previously accumulated in accounts such as an RRSP, PRPP, RPP, SPP, or FHSA. By converting your savings into an RRIF, your investments can continue to grow while you make regular withdrawals according to your financial needs, with taxation applied only when funds are withdrawn.
How does it work?
Conversion from RRSP:
Once you reach age 71, you must convert your RRSP into a retirement income option such as an RRIF, an annuity, or a lump-sum withdrawal. If you do not convert it, the full value of your RRSP will be treated as taxable income.
Regular withdrawals:
After converting to an RRIF, you can begin taking scheduled withdrawals. The minimum annual withdrawal amount is based on your age and the account balance at the start of each year. These withdrawals are considered taxable income.
Investment growth:
Investments within an RRIF continue to grow tax-deferred. Similar to an RRSP, you only pay tax when funds are withdrawn.
Who can open an RRIF?
Age requirement:
Anyone who reaches the age of 71 is required to convert their RRSP into an RRIF.
Eligible account types:
Funds held in RRSP, PRPP, RPP, SPP, or FHSA accounts can be transferred into an RRIF.
Financial institution:
An RRIF can be opened through financial institutions such as banks, insurance companies, or trust companies.
Advantages of Investing in an RRIF
Tax-deferred growth:
Investments within an RRIF grow tax-deferred until withdrawn.
Steady income stream:
Provides a consistent and reliable source of income based on your financial needs in retirement.
Flexible withdrawals:
Annual withdrawal amounts can be adjusted according to your age and financial requirements, within the minimum limits set by the government.
Easy transfers:
Allows seamless transfer of savings from various registered accounts into a single RRIF.
Key Points You Should Know
Mandatory conversion from RRSP to RRIF:
Once you reach age 71, you must convert your RRSP into an RRIF or take a lump-sum withdrawal.
Minimum annual withdrawals:
The CRA sets the minimum required withdrawal amount each year based on your age. You cannot withdraw less than this amount.
Tax-deferred investment growth:
Investments within an RRIF grow tax-deferred until withdrawn, similar to an RRSP.
Flexibility in withdrawals:
You may withdraw more than the annual minimum at any time, but you must meet the minimum amount set by the CRA.
Taxable income:
Any amount you withdraw from an RRIF is considered taxable income in the year it is received.
Transfers between financial institutions:
You may transfer your RRIF from one financial institution to another without tax penalties, as long as the transfer is done directly.
Multiple eligible funding sources:
An RRIF can be funded from various registered accounts, including RRSPs, PRPPs, RPPs, and SPPs.
Smart retirement planning:
Using an RRIF allows you to create a steady stream of income during retirement while effectively managing your tax obligations.