The Registered Retirement Income Fund (RRIF) is a tax deferral vehicle available to Registered Retirement Savings Plan (RRSP) holders. A RRIF account needs to be set up first, the RRSP assets can be transferred without incurring a taxable transaction. Starting in the year after the year you establish a RRIF, you have to be paid out a yearly minimum amount (monthly or a lump sum). You can withdraw more, but not less than the minimum. The payout period under your RRIF is for your entire life. If you don’t immediately require the full amount of your minimum payment, consider contributing what’s not needed to your Tax-Free Savings Account (TFSA). RRIF payouts are essentially the opposite of annual RRSP-deductible contributions. There are maximum annual amounts that may be contributed to an RRSP, and there are minimum RRIF withdrawals each year. The amount withdrawn from a RRIF will be taxable each year. As with an RRSP, growth within a RRIF is tax-deferred, and annuitants may continue to manage their investments if a self-directed plan is used.
What is a RRIF?
You set up and fund a RRIF account by transferring your RRSP investments into this new investment vehicle. Your financial institution will advise you on the types of investments they can contain. Once the RRIF is established, there can be no more contributions made to the plan, nor can the plan be terminated except through death. Consider naming your spouse a successor annuitant. A RRIF can be opened at any age, but new contributions can never be made to a RRIF. The most common way money gets into a RRIF is through a rollover from an RRSP. When this is done, no taxes are payable on the transferred funds. As with an RRSP, tax is generally payable only on amounts actually withdrawn from a RRIF, allowing the remaining assets to continue to grow on a tax-deferred basis.
Many annuitants find the tax rate on RRIF withdrawals much lower than the tax rate they faced while employed because their income in retirement is not as high. One of the benefits of the RRSP/RRIF system is that RRSP contributions are often made and deducted from income that is taxed at high marginal rates, while RRIF withdrawals are often included in income and taxed at much lower rates.
RRIF Withdrawal Minimums
Once a RRIF is established, the annuitant is required to withdraw a minimum amount each year. That amount is based on the age of the annuitant or the annuitant’s spouse or common-law partner as outlined in the sidebar at left titled RRIF minimum factors. If your spouse is younger than you, you may want to base minimum payments on their age, allowing for lower minimum payments and tax-deferred growth for a longer period. Your taxable income impacts your eligibility for certain government benefits, such as Old Age Security (OAS).
| Age At Start Of Year | RRIF Minimum Payout Percentage |
|---|---|
| 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+ | 20.00% |
Receiving Income from a RRIF
You will receive a T4RIF each year to report the income on your tax return. When you withdraw funds from an RRIF, your financial institution withholds the amount of taxes due to the government on your behalf. The tax rates for withdrawals depend on your residency and the amount you withdraw. For residents of Canada (excluding Quebec), the rates are as follows:
- 10% on amounts up to $5,000
- 20% on amounts over $5,000 up to and including $15,000
- 30% on amounts over $15,000
Death & Taxes
The rules concerning the taxation of RRIF accounts on death essentially mirror those for RRSPs, with some minor variations. Generally, an annuitant of a RRIF must include the FMV of his or her RRIF as income on the date of death. This amount must be reported on the terminal return, and tax will be payable at the deceased annuitant’s marginal rate for the year of death. Amounts received from a RRIF upon the death of an annuitant can be transferred directly or indirectly to your RRSP, your RRIF, or buy yourself an eligible annuity if you were a qualified beneficiary of the deceased annuitant. This only occurs if the spouse has been named the successor annuitant. You can roll over the proceeds of a deceased annuitant’s RRIF to the Registered Disability Savings Plan (RDSP) of a financially dependent infirm child or grandchild. Beneficiaries should be named to help avoid probate taxes.
Spouse or Common-Law Partner as Successor Annuitant
RRIFs and RRSPs share the potential for tax deferral on the income inclusion at death in the terminal return. When a RRIF is established, the annuitant may designate a successor annuitant and/or a beneficiary of the RRIF. A successor annuitant is a special type of beneficiary designation that takes precedence over a regular beneficiary designation.
Specifically, a successor annuitant is the surviving spouse or common-law partner of the original annuitant who, if designated by the original annuitant, continues to receive RRIF payments after the death of the original annuitant. In other words, the successor annuitant designation enables the successor to take over the ownership of the deceased’s RRIF as the new annuitant under the same contract terms, without the need to transfer funds out of the original RRIF contract for estate settlement purposes. With a successor annuitant designation, the deceased RRIF annuitant would be responsible for reporting RRIF withdrawals received while alive. The successor RRIF annuitant would be responsible for reporting any new RRIF withdrawals received after the date of death. The regular income inclusion rule discussed previously would not apply, with a successor annuitant designation.
Spouse or Common-Law Partner as Beneficiary
When a RRIF account is set up, the annuitant may designate a beneficiary in the RRIF. If a spouse or common-law partner is the named beneficiary of the RRIF, the value of the RRIF at death qualifies as a designated benefit. This designated benefit may not be taxable to the deceased annuitant; rather, it can be taxed to the surviving spouse or common-law partner, who can transfer this amount directly to his or her RRSP, RRIF, SPP, PRPP or to an issuer to purchase an eligible annuity and claim a deduction equal to the amount of the designated benefit. As with a transfer of a refund of premiums with an RRSP, a transfer of a designated benefit by a spouse or common-law partner as beneficiary does not require RRSP contribution room. By doing so, the value of the RRIF is simply transferred into the surviving spouse’s or common-law partner’s RRSP, RRIF, SPP, PRPP or to an issuer to purchase an eligible annuity and continue to remain tax-deferred (less any required minimum annual withdrawals from the deceased’s RRIF).
Child or Grandchild as Beneficiary
If the beneficiary of the RRIF is a financially-dependent child or grandchild, the proceeds of the RRIF still qualify as a designated benefit. The definition of a financially dependent child or grandchild as a beneficiary of the RRIF is the same as that of an RRSP (refer to the section titled “Child or grandchild as beneficiary” under the RSP section above).
This designated benefit may be taxable in the hands of the child or grandchild, not the deceased annuitant, similar to the treatments described in the RRSP section.
If the financially dependent child or grandchild is a minor but is not physically or mentally infirm, the proceeds of the RRIF could be used to purchase an annuity, which must end by the time that child reaches the age of 18.
If the financially dependent child or grandchild is an adult and is not physically or mentally infirm, no tax deferral is available. However, an income redistribution is possible from the deceased to the financially dependent adult child or grandchild, having the income potentially taxed at a lower marginal tax rate.
If the financially dependent child or grandchild is physically or mentally infirm (regardless of age), the amount that qualifies as a designated benefit may be rolled over into the child’s or grandchild’s RRSP, RRIF, SPP, PRPP, or to an issuer to purchase an eligible annuity.
Similar to the RRSP treatment, Chart 2 in the CRA Information Sheet RC4178, Death of a RRIF Annuitant or a PRPP Member, can be used to redistribute income from the deceased annuitant to a financially dependent child or grandchild.
Estate as Beneficiary
Finally, as with RRSPs, if a RRIF annuitant simply names his or her estate as the beneficiary of the plan, the amount paid from the RRIF to the estate for the benefit of either the spouse or common-law partner, or the financially dependent child or grandchild (assuming they were beneficiaries under the Will) can be considered to have been transferred directly to them. The same treatment outlined in scenario 6 would apply. As with RRSPs, the legal representative of the estate, along with the beneficiary, can file a joint election with the CRA through CRA Form T1090, Death of a RRIF Annuitant – Designated Benefit or Joint Designation on the Death of a PRPP member to treat the amounts as though it was transferred directly to the spouse or common-law partner, or child from the RRIF.
Rollover to a Registered Disability Savings Plan (RDSP)
Since July 1, 2011, a beneficiary of RRIF who is a financially dependent child or grandchild that also have a physical or mental infirmity can roll over the proceeds to an RDSP tax-free. These rollovers cannot exceed the maximum RDSP contribution room of $200,000 and will also reduce the room by the amount transferred. Government grants will not be paid into the RDSP on funds rolled over in these scenarios. For more information, please refer to our Tax & Estate InfoPage titled Registered Disability Savings Plans (RDSPs).
RRIF Losses After Death
As mentioned earlier, the FMV of RRIF investments is generally included in the deceased annuitant’s income in the year of death.
A subsequent increase in investment value is generally included in the income of the RRIF beneficiaries upon distribution. Until the 2009 Federal Budget, there was no income tax provision to recognize a decrease in the value of RRIF investments occurring after death and before distribution to beneficiaries.
Presently, for final distribution from a deceased annuitant’s RRIF occurring after 2008, post-death decreases in value may be carried back and deducted against income on the deceased’s terminal tax return. The amount will generally be calculated as the difference between the year-of-death RRIF income inclusion and the total of all amounts paid out of the RRIF after the death of the annuitant.
