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  • Elias Zeekeh, MBA, CPA, CMA

What you need to know about Registered Retirement Income Funds

All Registered Retirement Savings Plans (RRSP) are required to be converted into Registered Retirement Income Funds (RRIF) by December 31st of the year in which you turn 71. Some financial institutions will do the conversion automatically, as RRIF accounts can hold the same investments as an RRSP account. However, you do have the option to convert to an RRIF any time before then.

The difference between an RRSP and RRIF is that an RRSP allows you to make contributions as long as you have the contribution room and withdrawals are optional. Meanwhile, with an RRIF contributions are not allowed and there are minimum mandatory withdrawals each year. The minimum withdrawal amount is equal to 5.3% of the value of your RRSP (effective 2015) in the year you turn 71, and the minimum withdrawal percentage increases each year. See the table below:

The amounts withdrawn will be added to your taxable income, and there is no maximum withdrawal amount on an RRIF.

Overall, the most notable advantage of an RRIF is that your investment fund can continue to grow tax sheltered like an RRSP until the funds are withdrawn (i.e. continue to earn interest on interest). Furthermore, note you don’t actually have to sell your investments to complete a withdrawal. Most financial institutions will allow you to transfer you investments to a non-registered investment account or a TFSA. Unlike an RRSP you have the option of not having withholding tax on the mandatory withdrawals, but if you withdraw more than the mandatory amount there are minimum withholding taxes like an RRSP. Lastly, if your spouse is younger you can use their age to calculate the minimum withdrawal amount. This is very helpful if you have other sources of income.

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