If you’ve spent your working years building a retirement nest egg in your Registered Retirement Savings Plan (RRSP), congratulations—you’ve taken an important step toward financial security for your retirement. But eventually, the time comes to shift from saving to spending. That’s where a Registered Retirement Income Fund (RRIF) comes in.

A RRIF is the natural continuation of your RRSP that allows you to convert your savings into a stream of income. Understanding how RRIFs work, when to convert and how withdrawals are taxed can help you make informed decisions that support your retirement aspirations.

Although there are other options available for the proceeds in your RRSP, this article focuses on the most commonly used strategy—converting an RRSP to a RRIF.

What is a RRIF?

A RRIF is a registered account governed by the Income Tax Act designed to provide you with income from your RRSP savings. You transfer funds on a tax-deferred basis from your RRSP into a RRIF and from there you are required to begin withdrawing a minimum amount each year, starting the year after the RRIF is opened. Although, there is a minimum, there is no maximum withdrawal and you can make withdrawals as often as you like. Withdrawals are taxable income, while the investments inside the RRIF continue to grow tax-deferred. The investment options for a RRIF are the identical to those for an RRSP.

Converting your RRSP to a RRIF

By the end of the year you turn 71 or any time sooner, you have three options, or a combination of the three, for what you can do with the assets in your RRSP: 

• Convert the RRSP to a RRIF
• Purchase an annuity
• Cash in the RRSP

Similar to an RRSP, the investments in a RRIF are chosen by the RRIF holder and remain tax-deferred until withdrawn. Generally assets in your RRSP do not have to be liquidated when transferred to a RRIF but are transferred “in-kind.” 

There are minimum annual payments you are required to receive from your RRIF each year beginning the year after you make the conversion from RRSP to RRIF. This means that, at the latest, you must begin to take an income from your RRIF before the end of the year in which you turn 72. When establishing a RRIF, you have the option to calculate your minimum withdrawal based on your own age or the age of a younger spouse or common-law partner. RRIF payments are included in your taxable income in the year the income is received. While there is a minimum, there is no maximum. As a result, a RRIF can provide you with some flexibility and access to funds if required. You may open multiple RRIFs or consolidate multiple RRSPs into one RRIF.

RRIF withdrawals

You must withdraw at least the minimum annual payment from your RRIF beginning in the year after you open your RRIF. You are able to withdraw more than the minimum at any given time.

• If you are under age 71 your minimum annual payment is based on the following formula:

• If you are age 71 or older the minimum payment is calculated by multiplying the December 31 value of your RRIF by the percentages below:

Taxation and withholding tax 

Although the full value of your RRIF withdrawal is taxable, your financial institution will only apply withholding tax on the amount of your withdrawal that is above the minimum annual payment. The financial institution will remit this tax to the CRA on your behalf, thus decreasing the amount of tax payable at the end of the year. The amounts that are withheld are as follows:

• 10% for amounts up to and including $5,000
• 20% for amounts more than $5,000 and up to $15,000
• 30% for amounts more than $15,000

To assist with tax reporting, the financial institution will issue a T4RIF to the RRIF holder each year which will summarize the RRIF income received in the previous year and any withholding tax submitted.

As there is no minimum payment in the year of establishing the RRIF (the required minimum payments begin in the following year), withholding tax would be applied to the full amount if you make a withdrawal in the year you converted your RRSP to a RRIF.

RRIF planning strategies

Use your spouse’s age - When establishing the RRIF you can choose to base the annual minimum withdrawal calculation on your own age or the age of a younger spouse or common-law partner. It is recommended that the younger spouse’s or common-law partner’s age be used, providing greater flexibility.

Manage timing of payments - You have the flexibility to choose how often and when you receive payments from your RRIF throughout the year. You can arrange this with your issuer and amend it at any point during the life of your RRIF.

For instance, if your RRIF is your primary source of retirement income, you might prefer bi-weekly or monthly payments. Alternatively, if you wish to remain invested and transfer your annual minimum RRIF payment into another investment vehicle, like a Tax-Free Savings Account (TFSA) or a non-registered account, you can opt for your issuer to pay your minimum amount in a lump sum annually.

Split RRIF income with your spouse - Pension income splitting can be a smart way to transfer income from a higher-earning spouse to one that is in a lower tax bracket.

Once you are 65, RRIF withdrawals are eligible for pension income splitting. You can allocate up to 50% of your RRIF income to your spouse, potentially lowering your total tax burden. To take advantage of this opportunity, both spouses must jointly elect to split eligible pension income when they are completing their personal income tax returns each year.