A Registered Retirement Income Fund (RRIF) is an account that can give you a steady income in retirement.
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What’s a Registered Retirement Income Fund (RRIF)?
A Registered Retirement Income Fund (RRIF) is an account you open when you transfer money from your Registered Retirement Savings Plan (RRSP). Transfers from other registered plans like pension plans and DPSPs are allowed under certain circumstances.
You can open a RRIF with financial institutions such as banks and trust companies, credit unions and caisses populaires, insurance companies, mutual fund companies, and investment firms.
You must convert your RRSPs to a RRIF before the end of the year you turn 71 years old — although you can do so earlier.
Once the RRIF is set up, you can’t make any more contributions to the plan. However, you can have more than one RRIF.
Once your RRIF is set up, you must take out a minimum amount each year. This amount increases as you get older. There is no maximum withdrawal limit.
5 reasons to consider opening a RRIF
Opening a RRIF can be a helpful step in your retirement planning. You could convert your RRSP to an annuity. Or you could withdraw money from your RRSP which would count as taxable income. But a RRIF can be a useful place for your money because:
1. Your savings grow tax-free while in your RRIF
You won’t pay any tax on investment earnings when you convert your RRSP to a RRIF. Your money will continue to grow tax-free as long as it stays in the RRIF. You only pay tax on the withdrawals you make.
If you take out more than the minimum amount, you’ll also pay withholding tax.
2. You have a variety of investment options
As with other registered accounts, you can decide how to invest your money once it’s in the RRIF. It can hold the same kinds of investments as an RRSP, including GICs, mutual funds, ETFs, segregated funds, stocks and bonds.
3. You have flexible RRIF withdrawal options
While there is a minimum amount you have to take out from your RRIF every year, there is no maximum amount. You can:
- Make regular monthly, quarterly, semi-annual or annual withdrawals.
- Change the amount and frequency of your withdrawals if your needs change.
- Take lump-sum withdrawals if you need extra cash.
You can decide how much money to withdraw from your RRIF each year — as long as you meet the minimum withdrawal requirement.
4. Minimum RRIF withdrawal amounts can be based on your spouse’s age
If you have a spouse who is younger than you, you can use their age to calculate the minimum amount you have to take out of your RRIF every year. The lower the age, the lower the minimum amount and the less income tax you’ll pay on the withdrawals. This can be a good strategy if you have other sources of income and want to leave your money in your RRIF for as long as possible.
5. Your spouse can inherit RRIF tax free
If you have a spouse, you can name them as your beneficiary to inherit your RRIF tax free. It won’t be included in your final income tax return. If you name your spouse as “successor annuitant”, they can take over your RRIF and automatically start receiving payments from it after your death. The value of your RRIF will also not be included in your estate for calculating probate fees.
Pension income amount
If you’re over age 65 and don’t have a company pension plan, withdrawals from your RRIF may qualify for the pension income amount.
What are the different types of RRIFs?
There are five types of RRIFs. The type you choose depends on the investments you plan to hold.
1. Guaranteed interest RRIF
You can invest in GICs and Canada Savings Bonds. They pay fixed rates of interest over the term that you choose. You can open this type of RRIF at most financial institutions.
It may be a good choice if you:
- Have a low tolerance for risk.
- Want to protect your principal.
- Want a safe, steady income.
- Are willing to accept lower growth.
In general, the longer the term of the GIC, the higher the interest rate. It’s worth shopping around to compare interest rates.
2. Mutual fund RRIF
You can choose from a variety of mutual funds — ranging from conservative money market funds to more aggressive funds that invest in equities. You can open this type of RRIF at most financial institutions.
It may be a good choice if you are:
- Looking for higher returns.
- Comfortable with more risk.
3. Segregated fund RRIF
Segregated funds are similar to mutual funds. You open this type of RRIF at an insurance company. The key difference is that the insurance company guarantees between 75% and 100% of your original investment if you hold your investment for a certain amount of time — usually 10 years.
It may be a good choice if you:
- Want to grow your savings faster than with GICs.
- Do not want to take on as much risk as with mutual funds (mutual funds do not guarantee your principal).
You’ll pay higher fees for these funds than for mutual funds. This is to cover the cost of the insurance protection.
Some insurance companies now offer a “portfolio RRIF.” This combines a mix of GICs and segregated funds in a single RRIF.
4. Self-directed RRIF
You can hold many kinds of investments in a self-directed plan. Self-directed RRIF’s can include: GICs, mutual funds, ETFs, segregated funds, stocks and bonds. You open this type of RRIF at an investment firm.
It may be a good choice if you:
- Want a wider range of investment choices.
- Are a knowledgeable investor.
- Feel comfortable making all the investment decisions yourself.
- Want to be able to change the investments you hold in your RRIF as your needs change or the markets shift.
5. Fully managed RRIF
If you have a lot of retirement savings or a complex financial situation, consider a fully managed RRIF. A professional money manager will create and manage a custom portfolio to fit your financial goals and situation. This process is known as discretionary investment management.
You’ll have access to a similar range of investment options as with a self-directed RRIF. You can open this type of RRIF at many financial institutions, but there is usually a minimum amount required to qualify.
It may be a good choice if you:
- Have a complex portfolio.
- Have built up a lot of retirement savings.
- Are more comfortable with a professional managing your investments.
How do you open an RRIF?
There are six key steps to open your RRIF:
1. Review your investment strategy
When you convert your RRSP to a RRIF, it may be a good time to reconsider your investment strategy.
For example:
- If you retire early and expect you’ll need income for 20 to 30 years in retirement — you may want to allocate some of your RRIF to investments with higher growth potential over the long term. This could be in equity mutual funds, ETFs or stocks. However, these investments also have higher risk.
- If security is your main concern after retirement — you may want to put more of your money in guaranteed investments like GICs or fixed-income investments like government bonds.
Plan and monitor your RRIF investments carefully. If you lose money investing, it can be difficult to make up for these losses if you’re no longer working.
2. Shop around to compare fees and plans
You can set up a RRIF at most financial institutions, investment firms and insurance companies.
Questions to ask include:
- What are the fees?
- Are there penalties to change the withdrawal frequency?
- Can you make extra withdrawals at any time?
- What investment options are available?
3. Choose a RRIF and financial institution
You don’t have to open the RRIF at the same institution where you hold your RRSP. If you want a variety of investment options and are comfortable making investment decisions, talk to investment firms about opening a self-directed RRIF. If you have a large amount of retirement savings and would like your RRIF to be managed by a professional money manager, ask about a fully managed RRIF.
4. Choose a beneficiary and successor annuitant
Decide who you want to inherit your RRIF savings. If you don’t choose a beneficiary, your RRIF will become part of your estate when you die, and it may be subject to income tax and probate fees.
If you choose your spouse as the beneficiary, you can also name them as the “successor annuitant”. That means they can take over your RRIF and receive your payments automatically after your death.
5. Plan your withdrawals
You must take out a minimum amount each year. You can choose regular monthly, quarterly, semi-annual or annual withdrawals.
Make sure you will have cash available when you need it. You want to avoid any penalties for cashing in an investment early or selling investments at a time when they have lost value.
For example, if you have a guaranteed interest RRIF, stagger the terms of your investments. That way, you will have money maturing each year. If you have a self-directed RRIF, hold some investments that are easy to turn into cash like short-term GICs or money market funds.
RRIF is designed to provide you with an income stream from your RRSP throughout retirement. Try our calculator to estimate withdrawals from your RRIF in retirement and see how long your savings will last.
6. Review and sign the contract
Read all paperwork carefully. This includes the application form and your RRIF contract. Make sure you understand the fees and rules for withdrawing money from your RRIF.
Plan your investments so you have cash available when you need it. Try to avoid paying a penalty for cashing in an investment early or selling investments at a time when they have lost value.
Summary
A Registered Retirement Income Fund (RRIF) can be an important part of your retirement plan. When opening and managing your RRIF, keep in mind:
- You must convert your RRSP to a RRIF no later than the year you turn 71.
- You must take out a minimum amount from your RRIF each year based on your or your spouse’s age, but there is no maximum withdrawal limit.
- You can hold investments in your RRIF, as you would have in your RRSP. Your savings grow tax-free while in the RRIF.
- You can name your spouse as a beneficiary of your RRIF tax-free.
- There are multiple types of RRIFs available. Choose the one that is a good match for your risk tolerance and expected time horizon for using income from the RRIF.
- Know the fees for the different types of RRIF plans before choosing one.
