As Canadians move from saving for retirement to drawing income, the Registered Retirement Income Fund (RRIF) becomes a central part of their planning. For many clients, funds that have built up inside RRSPs and similar plans will eventually be converted to a RRIF. At that point, their focus shifts from contributions to withdrawals and taxation.
In this article, Wealth Professional Canada will shed light on the core rules around RRIFs. We'll help you see where your guidance can make a real difference to your clients. Plus, feel free to scroll below and see the latest RRIF news from our team!
A Registered Retirement Income Fund (RRIF) is an arrangement between a client and a carrier. The carrier can be any of these financial institutions:
The RRIF is registered with the Canada Revenue Agency (CRA) and is designed to pay out income during retirement. Learn more about RRIFs when you watch this video:
Should retirees draw from their RRIFs earlier? Find out in this article.
Your clients do not make regular contributions to a RRIF the way they do to a Registered Retirement Savings Plan (RRSP). Instead, they fund a RRIF by transferring property directly from certain registered plans. These are the types of transfers that can be used to set up or add to a RRIF:
You can also move money from these sources into a new RRIF:
It all depends on the options available from the transferring plan. However, your clients cannot transfer any part of a retirement allowance to a RRIF.
Once the RRIF is established, your clients cannot contribute more money directly. The RRIF also generally cannot be terminated except on death. Make sure to explain this to your clients as they move funds out of their accumulation plans and into income plans.
Your clients can have more than one RRIF. They can also choose a self-directed RRIF if they want more control over the investments held inside the plan. With a self-directed RRIF, your clients can build and manage the portfolio by buying and selling different types of investments.
The rules for self-directed RRIFs are largely aligned with those for self-directed RRSPs. Investment choices must follow the eligible investment rules for registered plans.
If your clients are considering a self-directed structure, you should work with their financial institution to confirm which investments are allowed.
Every year, starting in the year after a RRIF is established, your clients must withdraw at least a minimum amount. The minimum is calculated by:
For a 71-year-old, the RRIF withdrawal rule requires your clients to take out at least 5.28 percent of the fair market value of the RRIF at the start of the year.
To calculate the minimum for that year, look at the total fair market value of all property in the RRIF on January 1. Then multiply that value by 5.28 percent. Your clients can always withdraw more than this amount if they need to. They cannot withdraw less than the minimum for that year.
Here's a comparative table to check for other age groups:
| Age of the RRIF annuitant or spouse or common-law partner |
RRIF minimum payout percentage |
|---|---|
| 71 | 5.28% |
| 72 | 5.40% |
| 73 | 5.53% |
| 74 | 5.67% |
| 75 | 5.82% |
| 76 | 5.98% |
| 77 | 6.17% |
| 78 | 6.36% |
| 79 | 6.58% |
| 80 | 6.82% |
| 81 | 7.08% |
| 82 | 7.38% |
| 83 | 7.71% |
| 84 | 8.08% |
| 85 | 8.51% |
| 86 | 8.99% |
| 87 | 9.55% |
| 88 | 10.21% |
| 89 | 10.99% |
| 90 | 11.92% |
| 91 | 13.06% |
| 92 | 14.49% |
| 93 | 16.34% |
| 94 | 18.79% |
| 95 and older | 20.00% |
When you explain RRIF strategies to clients, be sure that you don't oversimplify complex RRIF withdrawal rules.
While a RRIF is a smart way to draw retirement income, it also comes with drawbacks. Here are some of them:
Let's discuss each of these five drawbacks below:
Once a client converts to a RRIF, they need to start taking out at least the required minimum in the year after the RRIF is set up. That minimum continues every year for the rest of their life.
This requirement can work against some planning goals. For example:
Clients can also withdraw more than the minimum, but never less. For some households, this can lead to higher taxable income than they might otherwise choose.
Another drawback is the lack of fresh contributions. When a RRIF is established, your clients can no longer contribute to it in the way they once did to an RRSP.
The only way to increase the RRIF value is through investment growth or by transferring in property from eligible registered plans (subject to those plans' own rules).
This means that once your clients move funds into a RRIF, they are firmly in the withdrawal stage. There is less room to adjust by adding new money. This can limit planning flexibility if circumstances change.
RRIFs must follow certain rules to keep their registered status. If a RRIF is changed in a way that no longer satisfies the conditions under which it was registered, it stops being a RRIF. It becomes an amended plan or fund.
When this happens, the CRA treats the annuitant as having received an amount equal to the fair market value of all property in the plan at the time it ceased to be a RRIF. That amount is taxable in that year, and this can create a very large income inclusion.
RRIFs that hold non-qualified investments or that are used as security for a loan can trigger additional tax complexity. The same is true where the RRIF trust sells property for less than fair market value or acquires property for more than fair market value.
These situations can create extra amounts that your clients must include in income, along with possible deductions. They also add layers of reporting, including attention to box 22 of the T4RIF slip and the use of line 23200 on the return.
For your clients, this means that not every RRIF income item is a simple retirement payment.
RRIFs can change in value between the date of death and the date of final distribution to the estate or beneficiary. This can create further planning challenges.
If the RRIF increases in value during that period, the growth is usually taxable to the beneficiary or estate in the year it is received. A T4RIF slip might be issued for this amount. This can add tax where the family might have expected the tax cost to be limited to the value at death.
If the RRIF decreases in value after death but before final distribution, the deceased's legal representative can request that the decrease be carried back and deducted on the deceased's final return.
The deduction is based on the following minus the total of all amounts distributed from the RRIF after death:
This deduction is not always available. In general, it is not allowed if the RRIF holds non-qualified investments after death or if the final distribution from the RRIF occurs after the end of the year following the year of death. While this rule can be waived case by case, there is no guarantee.
For your clients, this means that delays in winding up a RRIF or holding non-qualified investments can limit the ability to claim relief for post-death losses.
Aside from these drawbacks, here's another pitfall that might cost your clients thousands of dollars:
Want to be one of the best financial advisors in Canada? Challenge yourself by helping your clients turn these drawbacks into planning opportunities that improve tax efficiency and estate outcomes.
RRIFs sit at the core of the decumulation phase for many of your clients. Once funds move from RRSPs and other registered plans into a RRIF, the focus shifts to withdrawals, taxation, and estate outcomes.
RRIF rules can feel detailed, especially around death, transfers, and special income inclusions. But once you are familiar with how RRIFs are funded and how estates are handled, you can guide your clients through their options more effectively.
When you bring this knowledge into conversations, you can help clients turn their accumulated savings into sustainable income that supports their long-term goals and their families' futures.
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