A Registered Retirement Income Fund (RRIF) as an like a sequel to your Registered Retirement Savings Plan (RRSP). Your RRSP is used to save for your retirement while a RRIF is used to withdraw income during your retirement.
Below are some key facts and information worth noting:
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RRIFs are similar to RRSPs in several respects. Each allows for tax–deferred growth, offers several investment options and are government regulated.
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The major difference between an RRSP and a RRIF is that with an RRSP, you can make annual contributions as long as you have earned income and contribution room available and withdrawals are optional and will be taxed. With a RRIF, contributions are not allowed and you must make minimum mandatory withdrawals each year.
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An RRSP is required to be converted to a retirement income option such as a RRIF by December 31 of the year in which you turn 71. However, you do have the option to convert your RRSP to a RRIF at anytime before then.
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One of the restrictions with a RRIF is that starting in the year after you set up your RRIF account, you must start drawing it down. The minimum you have to take out each year is expressed as a percentage of the assets inside the account and increases as you get older.
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That amount is determined at the beginning of each year by a calculation that uses your age and the market value of the assets in your account as of December 31 of the previous year.
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RRIF payments are considered taxable income in the year they are withdrawn and will be added to your income for tax purposes. RRIFs are extremely flexible - you may make withdrawals as often as you like and you may withdraw over your minimum annual amount.
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You don’t have to wait until age 71 to open a RRIF – and there can be advantages to starting one earlier. For example, you may have retired and want to set up regular withdrawals but find that your financial institution won’t do this with an RRSP as these are savings vehicles and not set up to provide regular income. You may also want to transfer some or all of your RRSP assets to a RRIF at age 65 to take advantage of the $2,000 pension income tax credit.
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If your Spouse is younger than you and you do not need the extra income, you may elect to withdraw based on your Spouse's age which will be calculated at a lower percentage. You must make sure to notify the institution at the start as it is not possible to change after you've set up the account.
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Search online for in-depth explanations concerning RRIF and/or go to the CRA website (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrif-ferr/menu-eng.html).
