Resource: What you Need to Know about Your Registered Retirement Income Fund (RRIF)

Building wealth doesn't have to be complicated. In our resource series, we'll break down everything you need to know about investment accounts and wealth management in simple, straightforward terms. Whether you're just getting started or looking to increase your knowledge, we're here to help you make smart decisions about your money with confidence.

RRIF Accounts

As you approach retirement, an important financial step is converting your RRSP (Registered Retirement Savings Plan) into a RRIF (Registered Retirement Income Fund). This will turn your retirement savings into retirement income while minimizing taxes and keeping your investments working for you. A RRIF is created by converting an RRSP by the end of the year you turn 71, or sooner.  Like an RRSP, a RRIF allows tax deferred growth, and you can hold the same qualified investments as in your RRSP.

The key differences between an RRSP and a RRIF:

• You contribute to an RRSP during working years. It is possible to withdraw from an RRSP; however, withdrawals are discouraged as they are subject to withholding tax and income tax.

• You are required to withdraw a minimum annual amount from a RRIF. It is not possible to contribute additional funds to a RRIF.

RRIF Withdrawals

• Minimum annual RRIF withdrawals are mandatory and set by the government as a percentage of the total value of the RRIF.  As you age, the minimum withdrawal percentage increases until it peaks at 25% at the age of 95.

• You can choose to base your minimum payment schedule on your age or your spouse’s age. Basing the withdrawals on a younger spouse can be beneficial if you are trying to reduce your minimum withdrawals.

• RRIF withdrawals are taxable as income in the year of the withdrawal and can be issued weekly, monthly, quarterly or annually, depending on your preference. There is no limit on withdrawals (unless you hold a locked-in RRIF), but a withholding tax is charged on any withdrawals over the minimum amount.  

Naming a Beneficiary or Successor Annuitant

You can name a beneficiary or successor annuitant to your RRIF.

• If you name your spouse as your successor annuitant upon death they will take over the account.

  • The estate executor will include only the amounts you took from your RRIF before death on your final tax return.

  • Your spouse will pay tax on the amounts withdrawn throughout the rest of the year.

  • Your spouse will be required to withdraw the minimum annual amount from the RRIF.

• If you name your spouse as the qualified beneficiary of the account, they can transfer the funds in your RRIF above the RRIF minimum for the year to their own RRSP or RRIF in a tax-deferred rollover. 

  • The RRIF minimum withdrawal is still subject to income tax on your final tax return.

• If you name your child or someone else who is not your spouse as the beneficiary, the entire amount of the RRIF will be taxed on your final tax return as income.

  • The estate should cover the tax bill, however if there are insufficient funds in the estate then the beneficiary may be responsible for paying the taxes. This can potentially be a very large tax bill depending on the remaining funds in the account and should be taken into consideration when estate planning.

    
    

An RRIF allows you to continue to grow your investments and provides income to help you enjoy your retirement. Converting your RRSP to an RRIF is an important step in the retirement process, your CPWM advisor is informed on the process and can walk you through the steps required to transfer your RRSP an RRIF account. 

If you have questions don’t hesitate to reach out to your team at Cumberland Private Wealth to discuss how an RRIF can help you reach your retirement goals.