Registered Retirement Income Fund

A Registered Retirement Income Fund (RRIF) is a tax-deferred retirement plan under Canadian tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan (RRSP). As with an RRSP, an RRIF account is registered with the Canada Revenue Agency.

Like RRSPs, RRIFs are tax-advantaged savings plans that allow gains to compound, within the plan, without attracting tax. Withdrawals from a RRIF, as with an RRSP, are taxed as ordinary income irrespective of whether they were originally characterized as capital gains, dividends, income or return of capital inside the registered account. Contributions cannot be made to a RRIF.

Creating a RRIF
You can only contribute to a RRIF by directly transferring property from a matured or unmatured RRSP, a Registered Pension Plan (RPP) or another RRIF. You cannot transfer any part of a retirement allowance to a RRIF.

Establishing a RRIF can be done at anytime, but must be done no later than the year that one turns 71. Once a RRIF is established, there can be no more contributions made to the plan nor can the plan be terminated except through death.

It is possible to convert a RRIF back to an RRSP, if the annuitant is under the age of 71. A RRIF can be converted to an annuity at any age.

The rules allow you to have more than one RRIF and RRIFs can be self-directed in a similar manner to RRSPs.

When to convert
Some investors will want to wait to the legal limit of age 71 to convert their RRSPs to RRIFs. For example, if you don't need to make withdrawals to complement other sources of retirement income, keeping the money in the RRSP will let the funds compound tax-free as long as possible.

But there may be reasons to do an earlier conversion, whole or in part, especially if you plan to make withdrawals at age 65 or later. One reason relates to the pension tax credit and pension income slitting. A non-refundable federal pension tax credit of 15% is available on the first $2000 of "eligible pension income". Starting at age 65, eligible pension income includes RRIF withdrawals, but not lump sum RRSP withdrawals. Thus, "it may be beneficial to convert at least a portion of an RRSP to a RRIF when the taxpayer turns 65, in order to generate income eligible for the pension tax credit, and for pension splitting."

Pension income splitting is "a method for reducing the taxable income of one spouse by allocating income, on the tax return, to the other spouse". Up to one half of eligible pension income can be allocated to the lower income spouse. Taxpayers can only qualify for splitting pension income if certain conditions are met, including having recieved income that qualifies for the pension tax credit during the year. In other words, pension splitting works with RRIF withdrawals but not with lump sum RRSP withdrawals.

Minimum withdrawal schedule
No minimum withdrawal is required in the year the retirement fund (RRSP) is converted to a RRIF. In subsequent years, RRIF holders must withdraw funds in accordance with prescribed factors. These are minimum withdrawals and the annuitant may withdraw more than these amounts, if they wish to (there is no maximum).

Which age are the factors based on?
The minimum withdrawal percentages are based on the annuitant's age (or, if he/she so chooses, the spouse's age) and the value of the holdings on January 1 of each year. Your carrier calculates the minimum amount based on your age at the beginning of each year. However, you can elect to have the payment based on your spouse or common-law partner's age. You must select this option when filling out the original RRIF application form. Once you make this election, you cannot change it.

Current rates
The Federal 2015 Budget has reduced the minimum withdrawal factors for 2015 and subsequent years:

If the age is 70 years or younger, the prescribed factor is calculated as follows: 1 divided by (90 minus the age).

Pre-1992 RRIFs
Slightly different factors were used for RRIFs that were created prior to 1992; starting in 2015 all plans use the same factors.

LIFs and LRIFs
The withdrawal schedule above also applies to minimum withdrawals from Locked-In Retirement Fund (LRIF) or a Life Income Fund (LIF). These also have maximum withdrawals, however, unlike RRIFs.

In-kind withdrawals
It is possible to withdraw a security from a registered fund "in-kind:" that is, without selling it first. The security can be transferred to a non-registered account or to a TFSA if contribution room is available.

If an in-kind withdrawal is made, it must be at fair market value and there must be sufficient cash in the registered plan to cover any withholding tax. In a non-registered acccount, the fair market value applicable to the transfer will become the adjusted cost base of the security.

Investors facing forced withdrawals at reduced market prices may wish to consider an in-kind withdrawal if they do not wish to sell a security, but are forced to make a withdrawal to meet the minimum withdrawal requirements.

Withholding tax on payments from a RRIF
If you withdraw more than the "minimum amount", the amount above the minimum is subject to withholding tax, i.e. a deduction at source. Note that this is not a special tax or a different tax from regular income tax. Amounts withheld will "show on your tax return as taxes already remitted".

Withholding rates
The federal withholding rates on RRIF payments above the minimum are :
 * 10% (5% in Quebec) if the payment is not more than $5,000
 * 20% (10% in Quebec) if the payment is more than $5,000 but not more than $15,000
 * 30% (15% in Quebec) if the payment is more than $15,000

In Quebec, there is a also a 15% withholding from the province on "the payment from a RRIF that exceeds the minimum amount", for single payments only. For periodic payments, the RRIF carrier has to use the so-called "usual method" to calculate the withholding rate.

RRIF rollovers upon death of spouse
CRA advises: You can contribute to your RRIF any amounts you receive or are considered to have received from a deceased annuitant's RRSP if:


 * the annuitant under an RRSP dies and, at the time of death, you were the deceased annuitant's spouse or common-law partner;
 * you were a financially dependent child or grandchild of the deceased annuitant who depended on the annuitant because of a physical or mental infirmity. If this is the case, you may be able to transfer the amount even if the deceased annuitant had a spouse or common-law partner at the time of death.

CRA further advises: before any payments are made under the fund, the annuitant has to elect to use the prescribed factor corresponding to the age of the spouse or common-law partner when calculating the minimum amount. Once the election is made, it cannot be changed, even if the spouse or common-law partner dies. However, the annuitant can establish another RRIF by transferring funds and then make a new election for this other RRIF.

Eligible investments
The types of investments that are permitted in a RRIF are the same as those permitted in a RRSP. Common types include:
 * money, GICs and other deposits
 * most securities listed on a designated stock exchange, including stocks, exchange-traded funds and real estate investment trusts
 * mutual funds and segregated funds
 * most bonds
 * insured mortgages or hypothecs

Investment strategies
A self-directed RRIF is the continuation of a self-directed RRSP.

A RRIF account should be considered part of a larger portfolio, along with TFSAs, non-registered accounts, etc. This overall retirement portfolio should ideally be managed according to an investment policy statement, which includes an asset allocation.

When evaluating an appropriate asset allocation for a retiree, other sources of retirement income must be considered (Old Age Security, CPP/QPP, workplace pensions, etc.). Implementation of this asset allocation is covered in portfolio design and construction.

The main asset classes to consider are cash, fixed income and equities.

Income investing versus total return
A very conservative investment strategy for retirees is to try spending only the income and not touching the "capital". But when interest rates and dividend yields are low, a diversified portfolio of stocks, bonds and cash is unlikely to generate enough income to cover the minimum RRIF withdrawals listed above, which start at 4% at age 65 and increase thereafter. This may unwisely entice some retirees to "reach for yield", i.e. choose riskier investments because they offer higher current yields.

Instead, a total return approach looks at interest, dividends, but also growth of the portfolio (unrealized capital gains). If the total return is high enough, it is possible to sell some investments every year within the RRIF to meet the mandatory withdrawals, without prematurely depleting the RRIF, especially if some of the withdrawals are reinvested in a different account (e.g., TFSA, non-registered) rather then spent.

Retirement income planning and management can be a complex topic and investors might wish to consult a financial planner, if only to validate their plans.

Annuity conversion
A RRIF may be (permanently) converted to an annuity at any time, in part or completely. An annuity eliminates longevity risk by guaranteeing a lifelong income.

Whether to convert a RIFF to annuity eventually, or even choosing an annuity immediately when a RRSP matures (instead of a RRIF), can depend on factors such as:
 * desire for flexibility
 * investment risk tolerance
 * other sources of guaranteed income
 * life expectancy
 * bequest motive

See the annuity article for more discussion.