Life Stages: Retirement

Do you own a Registered Retirement Savings Fund (RRSP)? If so, by end of the year in which you turn 71, your RRSP must be cashed out, turned into an annuity, or get transferred into what’s known as a Registered Retirement Income Fund (RRIF).

Learn about how RRIFs work now so you’ll be prepared to make wise financial choices when the time comes.

Your Registered Retirement Income Fund (RRIF)

RRIFs are investment accounts to provide retirement income from the money saved in your RRSP during your working years. According to the CRA, RRIFs represent agreements between you and a carrier, such as a bank, credit union, insurance provider or investment company, which may or may not have held your RRSP.

You might have one RRIF or several, including a self-directed plan. While a RRIF is often funded by a direct transfer from your RRSP, in some situations it may include money from a direct transfer from a Registered Pension Plan (RPP), a Pooled Registered Pension Plan (PRPP), a Specified Pension Plan (SPP), or even another RRIF.

When your RRSP becomes a RRIF

You may hold the same investments within your RRIF that you held in an RRSP. And although you can transfer a RRSP into a RRIF at any age, you won’t be able to make additional contributions to the RRIF. In addition, a RRIF has a mandatory minimum withdrawal requirement each year. The percentage is based on either your age or your spouse’s age, and it will increase as you get older.

What you’ll need to do to establish a RRIF

When you’re ready to transfer funds to a RRIF, you’ll need to open an account. Expect to provide information including your age, and whether you’re basing the minimum withdrawal rates on your age or your spouse’s age. You’ll also choose whether to receive payments monthly, quarterly, or annually. And don’t worry, you can take out more than the required minimum annually should you need to. You’ll also complete forms to arrange the transfer of investments from your RRSP to the new RRIF, and to assign beneficiaries to the account.

Tax treatment of RRIF income

Like RRSP withdrawals, RRIF withdrawals get taxed based on the tax bracket you’re in when you receive the payment. Each year, you’ll receive a T4RIF slip from each RRIF plan holder. It will include information about the taxable amount received from that issuer, as well as any income tax deducted. You will need the information on your T4RIFs to complete your tax return.

Its important to know that RRIF withdrawals when you’re 65 or older count as eligible pension income, which means they qualify for the pension income tax credit and pension income splitting, which can reduce a couple’s overall tax burden.

Your RRIF income impacts your government income

In Canada, your RRIF income may impact your Old Age Security (OAS) government pension. That’s because your RRIF withdrawals are taxable and included as part of your net income. For example, if your net income from all sources including company pensions and RRIF income on line 236 of your tax return is over $75,910 for 2018, your OAS payment will get clawed back. And if your line 236 net income is $122,843 or more for 2018, your OAS payment will be $0.