A Registered Retirement Income Fund (RRIF) is a post-retirement investment account that allows for easy withdrawals from your Registered Retirement Savings Plan (RRSP) while still earning tax-free gains on your investments.
How it works is you set up the account through an investment firm, bank, insurance company, or trust company, and then move money in from your retirement savings accounts. You'll receive at least a minimum withdrawal amount every year, starting the year after you open your account and continuing for the rest of your life.
Your money can still grow tax free in your RRIF, but you'll no longer be able to make new deposits. Your withdrawals will also be taxed as income.
Here's what you need to know.
Key Takeaways
- An RRIF is a tax-sheltered investment account that specializes in post-retirement withdrawals.
- You can move your RRSP and other retirement funds to this account and continue to earn tax-free gains on your investments.
- RRIFs have minimum annual withdrawal amounts starting the year after you open the account which lasts for the rest of your life. These are taxed as income.
How to open an RRIF account
RRIFs can be opened at any time in your life, up until the end of the year that you turn 71. To open such an account, you can speak with your bank, investment firm, or other financial institution and transfer money from your RRSP and other investments into this new RRIF.
Although you can’t make any more contributions after its initial opening, you can have more than one RRIF. Transfers from other plans (like pension plans and DPSPs) are also allowed under certain circumstances.
Transferring money into your new RRIF is easy. Instead of cashing out your RRSP and paying taxes, you can simply transfer it into an RRIF where your money can safely rest, grow, and continue to be sheltered from taxation. Many types of investments can be transferred as well, and there’s no need to liquidate assets, sell stock, or take any such action.
But just remember that transferring accounts from one bank to another, or to/from an online broker, will incur fees. If you decide to open an RRIF with a different institution than where your RRSP is held, you’ll have to pay fees – usually between $50 and $150. These fees may be covered by the receiving institution.
Where to open an RRIF
There are several types of institutions that will help you to open an RRIF. These include banks, insurance companies, credit unions, and trust companies, among others. Online brokers and robo advisors can also help you with this.
Here's an overview of the pros and cons of your options.
| Option | Pros | Cons |
|---|---|---|
| Bank | * Familiar * Convenient * Access to advisors | * Higher fees * Limited investment options |
| Online broker | * Lower fees * Wide range of investment options * More control | * Can be overwhelming * Not recommended for new investors |
| Robo advisor | * Lower fees * Completely automated investing | * Completely hands-off * Little access to advisors |
| Financial advisor | * Personalized advice * Wide range of investment options | * Higher fees * Potential for bias |
| Insurance | * Access to segregated funds * Potential for guaranteed income | * Higher fees * Complex |
| Trust | * Personalized advice * Specialize in estate planning * Asset protection | * Higher fees * Limited products |
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RRIF withdrawals
Starting the year after you open the RRIF, your carrier will automatically withdraw an annual amount for you for the rest of your life. These withdrawals are very flexible, as long as you meet the minimum every year.
The minimum amount that’s withdrawn is decided by the federal government based on your age at the beginning of each year. Generally, the younger you are, the lower the payment. If you want to lower the minimum, you have the option to base your amount on your spouse’s age instead.
Though there’s no limit to how much you take out from the account, you have no choice but to at least receive the minimum amount determined by the government.
Everything you take out from your RRIF counts as income on your tax return, though your money does grow tax free while still in the account. You’ll also pay a withholding tax on any amount you withdraw above the minimum.
The pros of an RRIF account
RRIFs are an easy way to keep your retirement money growing tax free while still receiving regular withdrawals. Here's why you may want to pick one up.
1. Your money grows tax free
A huge benefit to RRIFs is that your money grows tax free while it’s in the account. It’s only when you take money out that you need to be concerned about taxes.
And in the event that you pass away, the money in your RRIF can be transferred to your spouse or beneficiary tax free.
2. Allows for diverse investments within the account
Plenty of different types of accounts and investments are able to be transferred into your RRIF, allowing you to watch your diverse investments safely flourish and provide you with retirement income. And since you can transfer them directly, they don’t need to mature or be liquidated first.
For instance, you can transfer the following investments into your account:
- GICs,
- mutual funds,
- ETFs,
- segregated funds,
- stocks, and
- bonds.
These investments can then continue to grow within your RRIF, though you can no longer make contributions to them.
Eligible accounts that can be transferred into an RRIF are:
- RRSPs,
- PRPPs,
- RPPs,
- SPPs, or
- another RRIF.
These options give you plenty of flexibility.
3. Withdrawal payments are flexible
Though you're required to take out at least the minimum amount every year you have an RRIF, when you receive your payments is mostly up to you. You can also choose to receive more than the minimum amount (but never less).
The cons of an RRIF account
Of course, nothing is perfect. RRIFs are not right for everyone and have possible downsides just like every other financial decision. Be sure to educate yourself on the possible downfalls of RRIFs before you make any final arrangements.
1. Minimum withdrawals are required
Unfortunately, no matter how much money you have in your RRIF, you must receive the minimum amount every year. This amount is set by the government based on your age, and though you can withdraw more, you can never withdraw less.
If you’re hoping to leave these funds for an emergency situation, a rainy day, or for future investments – you’re out of luck.
2. Can no longer make deposits once you open your account
Once you’ve opened the RRIF and your RRSP funds have been transferred, you can’t make any more deposits. Any included investments are free to flourish, and funds do accumulate interest and gain capital tax free, but you can’t add any more outside money into the account.
This might be frustrating for those who find themselves the unplanned recipients of large sums of money, or simply for those over the age of 71 who would like to increase or supplement the RRIFs balance.
3. Risk of outliving your money
If the investments included in your RRIF aren’t generating more profit than your minimum annual withdrawal amount, you may run out of money.
Especially since you can withdraw more than your minimum whenever you want to, outliving your funds is certainly a possibility. It simply depends on the dollar amount you have in the account and how your investments fluctuate.
RRIF alternatives
There are really only two alternatives to an RRIF: RRSPs and annuities.
An RRSP is only helpful until the year you turn 71 when you’re forced to withdraw all funds – and then pay income tax on the entire amount. An annuity, on the other hand, will supply you with fixed monthly or annual payments during your retirement, and you’re only required to pay taxes on the amount you receive annually.
| Type of account | Deposits | Investments | Withdrawals |
|---|---|---|---|
| RRIF | Can't make deposits once the account is open | * Flexible * Tax-free growth | * Counts as income * Must take out a minimum amount per year until death |
| RRSP | Deposits are tax deductible | * Flexible * Tax-free growth | * Counts as income, unless certain conditions are meant * Account must be closed when you're 71 |
| Annuity | One-time purchase | * Not an investment * Money stays stable and can't grow | * Counts as income * Receive a predetermined amount per year |
Here's a closer look at your options:
RRIF vs. RRSP
RRSPs are a fantastic way to grow your savings and plan for your retirement. And since you’re unable to withdraw funds for personal use without being taxed (with very few exceptions), leaving the money untouched until retirement is relatively easy.
Unfortunately, once you hit the age of 71 and December 31 of that same year arrives, your RRSP has reached maturity. All funds must be withdrawn and the account closed. Once it’s been withdrawn, you’re required to pay taxes on it.
And then there’s the issue of finding another type of account to hold these funds. Luckily, transferring your entire RRSP account into an RRIF is a wise move for many individuals, whether it be before or after retirement.
The biggest difference between an RRIF and an RRSP is what it does with your money:
- The RRSP will help your money to grow. It’s for saving and allows you to make contributions.
- The RRIF will provide you with funds on an annual basis. It’s for withdrawing and using money.
You can add money to an RRSP at any time and save it to be used at a later date. Once you’ve opened an RRIF, however, you can’t make any more deposits or additions.
Both will keep your funds sheltered from taxes, but you’ll be taxed on whatever amount is withdrawn from your RRIF.
RRIF vs. an annuity
The benefit to both RRIFs and annuities is that they both provide you a set amount of money every year. Despite this similarity, they are quite different.
An annuity is simply an insurance policy with a set amount of money that offers you one withdrawal per year. It’s that simple. For example, if you bought a $100,000 annuity, you’d get that money back over a certain amount of years as regular deposits.
An RRIF, on the other hand, can contain funds as well as investments, therefore providing the opportunity for financial growth. Investments are free to flourish, tax-free, only paying tax on the withdrawals. The amount withdrawn each year will vary, depending on your age (or the age of your spouse if you set it up that way).
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What is an RRIF?
A Registered Retirement Income Fund (RRIF) is a place to convert your RRSP funds and other retirement savings once you retire. The money can continue to grow tax free, but a minimum amount must be drawn every year.
How do I open an RRIF account?
To open an RRIF, you must transfer funds from your RRSP, investments, and/or other types of savings and deposit them into the RRIF. Once the funds from your RRSP are transferred, you must make your first withdrawal the next year.
What’s the difference between an RRIF and an RRSP?
An RRSP is a place to save for retirement without paying tax on your earnings. An RRIF is a type of fund that holds your investments, but a minimum amount of money must be withdrawn every year. Read more about the differences here.
How do RRIF withdrawals work?
RRIF account holders must make at least one withdrawal every year and must withdraw a certain minimum amount. The minimum amount for withdrawal is set by the federal government and is based on the account holder’s age. Learn more here.
Can I open an RRIF early?
You can open an RRIF at any point, up until the end of the year that you turn 71 years old. Once you open the account, your first withdrawal must come out the following year and continues until your death.
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