At the end of the year you turn 71, your RRSP matures and you must convert it to a Registered Retirement Income Fund, an annuity or withdraw it as a lump sum. The gist of a Registered Retirement Income Fund is to provide you with a regular stream of income as a minimum percentage must be withdrawn each year.
Converting RRSP to RRIF
Consider a Registered Retirement Income Fund as an extension of your RRSP. The funds inside the RRIF can continue to grow tax deferred, until withdrawn, and you can still keep the same portfolio holdings. One of the major differences, however, is that once your RRSP is converted into a RRIF, you cannot deposit any more funds into it. You can only withdraw. You can withdraw any amount of the RRIF as long as the mandatory minimum withdrawal is met each year.
Converting Your RRSP to a RRIF Before Age 71
There is no age requirement in which you can convert your RRSP into a RRIF. There is no benefit of converting your RRSP into a Registered Retirement Income Fund before age 65 unless you’re looking on withdrawing income. At age 65, you can do a partial conversion of your RRSP into a RRIF and take advantage of pension income tax credit and pension income splitting with your spouse.
Mandatory Minimum Withdrawal
Minimum withdrawal payments are not required to begin until the following year in which the Registered Retirement Income Fund account was opened, meaning that your first withdrawal must be completed by December 31st of the year you turn 72.
How Much Do I Withdraw?
Your Registered Retirement Income Fund minimum payment withdrawal is pre-determined by a percentage of the market value of the RRIF on December 31st of the previous year. This minimum percentage has been established by the CRA and is detailed below. The withdrawal rate could be based on your age or the age of your spouse.
| Age At Start Of Year | RRIFs Set Up After The End Of 1992 |
|---|---|
| 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 older | 20.00% |
The formula used to calculate the minimum withdrawal percentage is 1 ÷ (90 – Your Current Age)
RRIF Withdrawal Calculation Example
Example: On January 1st, 2020, you were 72 years old. The value of your RRIF on December 31st, 2019 was $100,000. For 2020, your minimum RRIF payment is $5,400. As you get older, the minimum withdrawal amount gets larger.
RRIF Withdrawal Calculation Example Based on Spouses’s Age
Example: On January 1st, 2020, you were 72 years old but your spouse was 69 years old. The value of your RRIF on December 31st, 2019 was $100,000. For 2020, your minimum RRIF withdrawal is $4,760. As you get older, the minimum withdrawal amount gets larger.
Frequency of Registered Retirement Income Fund Payments
One of the decisions individuals have to make is how frequent they wish to have the minimum RRIF payment sent to them. The options are:
- Monthly
- Quarterly
- Semi-Annually
- Annually
Each individuals circumstances are unique and you would choose a frequency that would meet your needs.
What If You Don’t Need The Income?
If you aren’t in need of the income that a Registered Retirement Income Fund provides, you can do an in-kind withdrawal to your Non Registered Cash Account or TFSA. For example, say you’re holding 50 shares of RBC in your RRIF and you don’t wish to sell them to cover your RRIF payment. You can transfer these 50 shares in-kind to your Non-Registered Account or TFSA, as part of the minimum withdrawal. Your shares stay invested and you’ve satisfied the requirement of withdrawing the minimum from your RRIF.
Taxation of RRIF Withdrawals
If you’re withdrawing the minimum from the Registered Retirement Income Fund each year, there is no tax withheld at the source. However, all withdrawals are fully taxable and must be declared. Your institution will issue your a T4-RIF detailing the withdrawal amount and any taxes withheld.
If you’re planning on withdrawing above the minimum, then withholding tax rates below would apply. There is no limit on how much you can withdraw. You may wish to increase the withholding tax rate in order to reduce future tax payable. This would all depend on your marginal tax rate.
| Withdrawal Amount | Up to $5,000 | Between $5,000 and up to $15,000 | Over $15,000 |
| Tax Rate withheld for Canadian residents | 10% | 20% | 30% |
| Tax Rate withheld for the province of Quebec | 5% | 10% | 15% |
When you file your tax return, the withdrawal income may be subject to a lower or higher tax rate which could result in a refund to you or a balance owing. The tax rate would depend on your sources of income, tax deductions and tax credits for that tax year.
Blended Payments Withdrawals
Blended payments are part minimum and part excess amount. The excess portion of each instalment payment would be subject withholding tax. The excess amount would be subject to withholding tax. The withholding tax is determined as if you were to withdraw the excess amount at one-lump sum payment instead of a series of payments.
Example
For example, your yearly minimum Registered Retirement Income Fund withdrawal for the year is $5,000. You decide to withdraw $12,000 from the account monthly at $1,000 a month using a pre-authorized withdrawal program.
The additional amount that you are planning to withdraw over the minimum is $7,000. ($12,000-$5,000). According to the table above, the portion of each monthly payment that is in excess of the minimum is subject to 20% withholding tax and not 10% which would apply to a $1,000 withdrawal.
T4-RIF Tax Slip
The tax slip is issued by end of February by yout financial institution. The T4-RIF will report the income that has been paid out to you in addition to any federal and provincial taxes that have been withheld.
Quebec Residents
For residents of Quebec, T4-RIF will not show your provincial taxes withheld as in addition to a T4-RIF, residents in Quebec will also receive a Releve 2 slip for provincial income purposes. Releve 2, Revenus De Retraite Et Rentes, will state the gross income plus any Quebec withholding tax.
What happens to a RRIF when you die?
At death, the value of the Registered Retirement Income Fund is included in the income of the deceased as they’re deemed to have received the value of the Registered Retirement Income Fund, immediately before death. However, keep in mind that income tax may be deferred if the named beneficiary on the Registered Retirement Income Fund is:
- Spouse
- Dependent Child Under 18
- Dependent Child who is mentally or physically disabled of any age
Naming Spouse as a Beneficiary
You have the option to name your spouse a successor annuitant or a beneficiary. It’s important to note the differences between the two.
- Spouse is the successor annuitant
When you name your spouse as an successor annuitant, upon your death, the spouse would take ownership of the account and the RRIF payments would continue. Investments would not be sold and you’d keep the same portfolio as is. - Spouse as a Beneficiary
When you name your spouse as a beneficiary, the investments in the RRIF will be sold and collapsed. Your wife can choose to transfer the funds in the account into her RRSP or a Registered Retirement Income Fund.
Advantages of Naming a Successor Annuitant Instead of Beneficiary Naming the spouse as a successor annuitant has it’s benefits such as you have more control over
- Have More Control of Market Timing
- When you name your spouse as a successor annuitant, the spouse would take over the RRIF as is but if they were to be named as a beneficiary, the investment would be sold and charges may be incurred. The selling of investments could be unwarranted in times of strong market growth.
- Save on Administrative Costs
- As a successor annuitant, the investments would stay as is but being named as a beneficiary, the deceased account holder could be charged administrative costs for selling the investments. In addition, no additional paperwork is needed to transfer the RRIF to the spouse as a successor annuitant.
- Level Payments
- Being named as a successor annuitant, the RRIF payments would continue based on the terms of the deceased’s RRIF. If the spouse was named as a beneficiary, minimum payments may have to be readjusted.
Naming a Dependent Child as a Beneficiary
If you’ve named a dependent child as a beneficiary, there are tax deferral opportunities that one could embrace.
- Child As Beneficiary
- If a child under 18 is named as a beneficiary, you have the option to purchase a term annuity up to age 18. In addition, you may also transfer it tax free to their RRSP.
- Child with Mental or Physical Disability As Beneficiary
- You have the option to roll it over to a Registered Disability Savings Plan but keep in mind that it cannot exceed your available contribution room or the $200,000 lifetime maximum limit.
Naming a Charity as a Beneficiary
If you’re looking to give back to the community upon death, you can name your favorite charity as a beneficiary. Upon death, your estate would receive a charitable donation tax credit of up to 100% of the value on date of death. This tax credit helps offset the tax burden on the estate. In addition, there would be no probate fees as it does not go through the estate.
Avoiding Probate
Naming a beneficiary on the account allows you to avoid probate fees as the account value will not be part of your estate. If you have a Registered Retirement Income Fund, it’s important to make sure that your account has a beneficiary and that beneficiary is someone that you’re comfortable with.