Registered Retirement Income Funds
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. As with an RRSP, an RRIF account is registered with the Canada Revenue Agency.
Converting from RRSP
The option exists to convert a RRSP into an RRIF anytime on or before an individual reaches their 71st year. Before the end of the year in which an individual turns 71, it is mandatory to either withdraw all funds from a RRSP plan or convert the RRSP to a RRIF or life annuity. If funds are simply withdrawn from a RRSP, the entire amount is fully taxable as ordinary income; one defers this taxation by transferring investments in a RRSP into an RRIF.
Investments held inside a RRIF grow in a tax-deferred manner just as with a RRSP. There are two primary differences between a RRSP and a RRIF. The first is that no further contributions can be made once conversion to a RRIF has occurred. The other is a special functionality called a minimum RRIF withdrawal. A minimum RRIF withdrawal is an annual obligatory amount which is cashed out of a RRIF and sent to the account-holder without withholding tax. The withdrawal remains taxable Canadian income, but is eligible for a $2,000 tax credit.
The minimum RRIF withdrawal each year is determined by a percentage, depending on the holder’s age, of the total value of the plan on January 1 each year. The holder of a RRIF may elect to withdraw an amount greater than the minimum RRIF amount for that year, though withholding tax will apply to this supplementary amount.