A Registered Retirement Income Fund (RRIF) is the second stage in an RRSP’s lifetime, during which the holder must withdraw a minimum amount from the account annually.

An RRSP can be turned into a RRIF at any time, but it must be completed by the end of the year in which the holder turns 71. Regardless of the holder’s age, RRIFs have required withdrawals which must be taken starting the year after the RRSP-RRIF conversion, and each dollar withdrawn is taxed as income. These required withdrawals are based on a percentage of the assets in the RRIF at the beginning of the calendar year, which increases over time, and increases more sharply past age 72 (about 5.5% per year at age 72). Full minimum withdrawal rates are available on the Canada Revenue Agency’s website. By age 94 and beyond, RRIF holders must withdraw 20% each year. RRIFs can be converted back to RRSPs any time before age 72, but past age 72 they must remain as RRIFs permanently. The same investments that can be held inside an RRSP can be held inside a RRIF as well.

There are a number of other important differences between RRSPs and RRIFs.

  • Money cannot be deposited into a RRIF.
  • If the financial institution has not been provided withdrawal directions by year-end, they will generally process a lump-sum withdrawal for the minimum withdrawal amount in December and remit to the holder by cheque or electronic payment.
  • Except when withdrawing the minimum amount, financial institutions are required to withhold some percentage of the withdrawal for taxes and remit to the CRA. This withholding tax percentage depends on the size of the withdrawal, and RRIF holders can choose to withhold more (but not less) than the required withholding tax rate. The withholding tax serves as a way to smooth out many RRIF holders’ taxes to prevent a large tax bill at year end. However, the withholding tax system is imperfect; holders of large RRIFs with little other income can end up withholding too much tax and receiving a large refund at year end. Holders of RRIFs who also have significant pension or employment income may be well served by withholding more than required to smooth out their tax payments.