RRIF 101: Setting Up a Registered Retirement Income Fund

The Registered Retirement Income Fund is an income option that gives you control over your retirement savings and keeps it tax-free until you are ready to withdraw the money. If you have a Registered Retirement Savings Plan, a RRIF becomes a mandatory option. “After 71 you can no longer contribute to your RRSP,” explains France Tisi, branch manager for the National Bank Financial Group in Welland, Ontario. “After that (age), the government requires that it must be transferred into a RRIF the same year you turn 71.”

Creating a RRIF

Opening a RRIF is fairly straightforward, according to Tisi. “Come in to your financial institution, fill out the paperwork and set up a payment schedule. The amount that you withdraw can be changed at any time, provided it’s at least the minimum as set out by the government. But the payments from the RRIF are taxable and must be claimed as income.” Canada Revenue Agency allows you to have more than one RRIF, and if you choose, the funds can be self-directed, similar to a RRSP. The financial institutions where you choose to open your RRIF include banks, insurance companies, credit unions or trust companies.

Self-Directed RRIF

A self-directed RRIF allows you, rather than the financial institution, to make the decisions about where your money is invested. The assets must be invested in a qualified investment as deemed by CRA or there may be tax implications. Qualified investments include mutual funds, stocks listed on a designated stock exchange, government and corporate bonds and government-invested certificates. Self-directing your RRIF may be useful if you’re knowledgeable about investments, if you like the convenience of one simplified plan or you’d like to diversify your investments.

Required Withdrawal Amounts

It is mandatory to withdraw funds from your RRIF each year as set out by the CRA. The amount changes annually and is calculated using a CRA formula involving your initial investment into the fund, your birthdate, the rate of return you expect to receive on your investment and the number of years you estimate you will be withdrawing from the fund. It can be taken out all at once, or you can take it monthly, bimonthly or quarterly.

The 2015 federal budget lowered the minimum annual withdrawal amount by approximately two percent for RRIFs. Prior to 2015, if you were a 71 year old RRIF holder, the minumum amount you were required to withdraw was 7.38% annually. For 2015 and later years, this amount drops to 5.28%.

Death of an Annuitant

A person who owns a RRIF is considered the RRIF annuitant. Any money taken from the fund is considered taxable income if the annuitant dies. However, there are options to reduce or defer these amounts. The carrier of the RRIF prepares a slip showing the date of death of the annuitant for a period from the day of the death to the December 31st of that year plus one more year. Included is the fair market value amount and the income earned in the RRIF. This slip is used to report the amounts in the RRIF to CRA for the year prior to the death of the annuitant. The RRIF is paid to the beneficiaries or, where none are named, to the estate. If the spouse or common-law partner is named as the sole beneficiary and the amount is transferred to a RRSP or RRIF, the amount is not taxable.

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