Registered Retirement Income Fund (RRIF)
A Registered Retirement Income Fund (RRIF) is simply an extension of a Registered Retirement Savings Plan (RRSP). Most of the rules and guidelines governing an RRIF account are identical to those that govern an RRSP account.
In the year that you turn 71 years of age, you are no longer permitted to make contributions to an RRSP account and you are required to begin withdrawing your accumulated savings from the shelter of your RRSP. As part of this transition, from accumulating savings in an RRSP to withdrawing savings, the government dictates that you must choose from have one of three options by December 31 of the year that you reach the age of 71. You can either:
- transfer your RRSP savings into a RRIF, or
- withdraw your RRSP savings to purchase an annuity, or
- simply withdraw your RRSP savings and include the RRSP value in your taxable income
Although the conversion of your RRSP is mandatory once you reach 71 years of age, you can transfer all or any portion of your RRSP savings into an RRIF at any age up to 71.
An RRIF enables you to continue to shelter your accumulated savings from income tax, but you will be required to withdraw a minimum dollar amount every calendar year. While your accumulated savings remain sheltered from income tax, the amount you withdraw each year must be included in your taxable income in the year it is withdrawn.
When you transfer your RRSP savings into an RRIF, in most cases you do not need to sell any of your investments. Your existing RRSP investments simply transfer in their current form into an RRIF account.
Note: Many Canadians will convert a portion of their RRSP savings into an RRIF to begin receiving annual payments that qualify for the $2,000.00 Pension Income Tax Credit. The Pension Income Tax Credit is available for individuals over the age of 65 year with qualifying pension income. For example, payments from Old Age Security (OAS), Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) are not qualified forms of pension income, whereas payments from an RRIF do qualify. As a rough guide, in 2009, if your total income was less than $40,000.00, the $2,000.00 Pension Income Tax Credit would eliminate all income tax from the first $2,000.00 of pension income received.
In addition, if your spouse or common-law partner is 65 years of age or older and does not have sufficient pension income for the Pension Tax Credit, you might consider withdrawing more than the $2,000.00 from your RRIF. The extra RRIF withdrawal could then be transferred to your spouse or common-law partner making them eligible to claim the $2,000.00 Pension Income credit in their income tax return.
Note: Some individuals also transfer a portion or all of their RRSP savings into an RRIF if they expect to begin receiving Government pension income at age 65. For example, if you are 60 years of age and have decided to begin receiving your Canada Pension (CPP) and Old Age Security (OAS) at age 65, it may make sense to begin annual withdrawals from your registered savings plan for the five years before turning 65 while your taxable income is in a lower tax bracket. The election is made on the CRA form T1032, the transferred income is reported on line 116, and the pension credit is claimed on line 314.