RRIF Withdrawal Date: Complete Guide to Timing Your Retirement Income

Introduction

A Registered Retirement Income Fund (RRIF) is a Canadian tax-deferred retirement plan that serves as an extension of a Registered Retirement Savings Plan (RRSP). Unlike an RRSP, which is for saving, an RRIF is designed for withdrawing income during retirement. Earnings within an RRIF grow tax-free, but withdrawals are taxable.

Upon establishing an RRIF, you are required to make a minimum withdrawal (Annual Minimum Payment or AMP) each year, which is a percentage of the RRIF’s value and increases with age. There is no minimum in the first year. There are no maximum withdrawal limits. Every dollar withdrawn is fully taxable as ordinary income. Withdrawals exceeding the minimum are subject to withholding taxes, but the minimum withdrawal itself is not. A 15% federal tax credit on the first $2,000 withdrawn is available for RRIF holders aged 65 or older, with potential provincial equivalents. “In kind” withdrawals, transferring investments directly to a non-registered account or TFSA, are possible but still taxable.

Key strategies include optimizing withdrawals (taking more than the minimum can save significant taxes), coordinating withdrawals with other income sources to avoid higher tax brackets, and reinvesting surplus funds into a Tax-Free Savings Account (TFSA) for tax-free growth and to protect government benefits. Income splitting with a spouse (if 65 or older) can reduce family tax. Strategic early withdrawals can also help spread out tax liability. It’s crucial to list a beneficiary, especially a spouse as a successor annuitant, to simplify estate planning and avoid immediate large taxable withdrawals. Consolidating multiple RRSP accounts before conversion can simplify administration. You can choose various withdrawal schedules, with a year-end lump sum allowing longer growth. Consulting a financial advisor is highly recommended.

Upon the RRIF annuitant’s death, remaining funds are generally taxable, but can be transferred to a spouse, common-law partner, or financially dependent children/grandchildren without immediate tax.

RRIF minimum withdrawal percentages increase gradually with age, starting at 2.78% at age 54 and reaching 20% at age 95 and older

Understanding these RRIF withdrawal date requirements is essential for converting your retirement savings into a reliable income source while managing considerations around annuities, saving priorities, and income needs throughout your golden years.

Conversion from RRSP to RRIF

    ◦ It is mandatory by the end of the calendar year in which you turn 71 to convert an RRSP to an RRIF or a life annuity, or withdraw all funds.

    ◦ You have the option to convert your RRSP to an RRIF at any time before this age.

    ◦ When converting, the investments held within the RRSP can be directly transferred to the RRIF account, eliminating the need for them to mature or be liquidated first.

    ◦ Once an RRSP is converted to an RRIF, you can no longer make contributions to it.

You can find detailed information on RRIF minimum payments, including age-based withdrawal rates, in the TD RRIF Minimum Payment Schedule.

Functionality and Withdrawals

◦ Minimum Withdrawals: Once your RRIF is established, you are required to withdraw a minimum amount each year, known as the Annual Minimum Payment (AMP). This minimum is calculated as a percentage of the RRIF’s total value at the beginning of the year, and the percentage increases as you age. There is no minimum withdrawal required in the first year you open your RRIF. To stay on track, it’s important to keep an eye on your RRIF withdrawal date and ensure you meet the required minimums. The minimum withdrawal rates for various ages are outlined in tables, for example:

5

        ▪ At age 72, the minimum withdrawal percentage is 5.40%.

        ▪ At age 82, it’s 7.38%.

        ▪ At age 95 and over, the minimum remains at 20% until the RRIF is depleted.

    Taxation of Withdrawals:

In other words, it’s treated as if you are still getting your salary, and you need to pay tax on the entire amount you withdraw. Be mindful of your RRIF withdrawal date, as the total amount of tax you pay depends on your individual circumstances. Income from CPP/OAS, as well as any other source (e.g., rent), gets added to your total income as taxable income, less eligible deductions and credits.

For instance, in most provinces outside Quebec, a 10% withholding tax applies to amounts up to $5,000, 20% for $5,000.01 to $15,000, and 30% for over $15,000. Even with withholding tax deducted, you might still owe more tax when filing your return, depending on your total income.

        ▪ The minimum RRIF withdrawal is paid out without withholding tax, but it is still taxable Canadian income.

        ▪ A tax credit of 15% on the first $2,000 withdrawn (maximum $300 federal savings) is available for RRIF holders aged 65 or older, and similar provincial tax credits may apply.

This is known as an “in kind” withdrawal. While it avoids redemption and withholding fees (for minimum withdrawals), the amount must still be included as income on your tax return.

Key Strategies and Mistakes to Avoid

    ◦ Not Optimizing Withdrawals: Taking out only the minimum RRIF amount can be a significant mistake, potentially costing tens to hundreds of thousands of dollars over retirement and at death. A strategy of withdrawing more than the minimum can lead to substantial tax savings and a larger estate over time.

    ◦ Coordinating Withdrawals: It’s crucial to coordinate RRIF withdrawals with other income sources to minimize your tax burden. Aim to withdraw enough to cover expenses while staying below the next tax bracket. Taking payments earlier or more than needed can unnecessarily place you in a higher marginal tax bracket.

    ◦ Using Your TFSA: If you don’t need all the money from your RRIF, consider reinvesting the surplus into a Tax-Free Savings Account (TFSA). TFSA withdrawals are tax-free and do not affect eligibility for income-tested government benefits like Old Age Security (OAS) or Guaranteed Income Supplement (GIS). This allows your money to continue growing tax-free.

    ◦ Income Splitting: If you have a spouse or common-law partner, you can split up to 50% of your RRIF income with them if you are 65 or older, which can reduce the overall tax paid by the family.

    ◦ Impact on Government Benefits (OAS Clawback, GIS, SAFER): RRIF withdrawals can impact eligibility for income-tested benefits. For example, higher RRIF income can lead to a reduction or “clawback” of OAS. Withdrawing all RRIF funds and transferring them to a TFSA can make you eligible for maximized GIS and SAFER benefits in future years, as TFSA withdrawals are not counted as taxable income by the CRA.

    ◦ Averaging Out Income: For individuals with large RRSPs, withdrawing income earlier by converting to a RRIF and strategically taking more than the minimum can spread out the tax liability over more years, potentially reducing the overall tax paid.

    ◦ Not Listing a Beneficiary: Failing to designate a beneficiary can lead to higher estate costs and delays. Naming a spouse as a successor annuitant allows the RRIF to transfer directly to them without closing the account, simplifying estate planning and avoiding a large, taxable withdrawal on death.

    ◦ Consolidating Accounts: If you have multiple RRSP accounts, consolidating them with one financial institution before converting to a RRIF can simplify administration and tracking.

    ◦ Choosing Withdrawal Schedule: While an annual lump sum is an option, you can choose weekly, monthly, quarterly, or semi-annual withdrawals. Withdrawing a lump sum at the end of the year can allow your RRIF to grow longer throughout the year.

    ◦ Seeking Professional Advice: Given the complexities and potential financial impacts, it’s highly recommended to consult a financial advisor or tax professional to develop a personalized RRIF strategy.

• Estate Considerations

    ◦ Upon the death of the RRIF annuitant, any remaining funds generally become taxable income. However, they can be transferred directly to a spouse or common-law partner, or to financially dependent children/grandchildren (under 18, or with a disability) without triggering immediate taxable income. For children without disabilities, tax can be deferred by purchasing annuities until they turn 18.

    ◦ Naming a spouse as a “successor annuitant” can help payments continue without interruption and minimize estate administration and taxes.

These strategies highlight that merely taking the minimum RRIF withdrawal, while common, might not be the most advantageous approach for many Canadians, and small adjustments in RRIF management can lead to significant financial benefits over time.

For more on retirement planning and strategies to enhance your retirement experience, check out our guide on How to Enjoy Retirement Life: Creating a Retirement Routine.

Origin and Early Implementation: The concept of the RRIF was first announced as part of the April 1978 Canadian federal budget. The reform was subsequently implemented through an amendment to the Income Tax Act, specifically the creation of section 146.3, which received royal assent on June 30, 1978.

Changes to Minimum Withdrawal Factors: Over the years, the rules governing RRIF minimum withdrawals have undergone changes:

• Pre-March 1986 Factors: For RRIFs established before March 1986, account holders may have the option to continue using the “Pre-March 1986” factor for minimum withdrawals, unless the RRIF was revised, amended, or held an annuity contract after July 1997.
• 2015 Federal Budget: The federal budget in 2015 introduced reduced minimum withdrawal factors for RRIFs. Tables provided in the sources illustrate these updated percentages for various age groups, showing lower withdrawal rates compared to previous factors.
• COVID-19 Pandemic Relief (2020): As part of the federal government’s response to the COVID-19 pandemic, RRIF minimum withdrawal amounts were temporarily reduced by 25% for the year 2020. This measure was implemented by the COVID-19 Emergency Response Act, which received royal assent on March 25, 2020.

Self-Directed RRIFs: Investment Options and Flexibility

Within the larger context of Registered Retirement Income Fund (RRIF) functionality and characteristics, the sources indicate that self-directed RRIFs are an available option for individuals.

Key points regarding self-directed RRIFs include:

• Option Availability: You can have self-directed RRIFs.
• Rules and Similarities: The rules that apply to self-directed RRIFs are generally the same as those for Registered Retirement Savings Plans (RRSPs). This suggests that the flexibility and investment choices typically associated with self-directed RRSPs extend to RRIFs.
• Investment Management: A benefit of a RRIF, which aligns with the concept of self-direction, is the ability to self-direct and select and manage your investments within the fund. This means the account holder has control over the investment mix.
• Investment Options: RRIF accounts, similar to RRSPs, can hold a variety of investment options. These can include Government bonds, Corporate bonds, Guaranteed Investment Certificates (GICs), Segregated Funds, Mutual funds, Exchange-Traded Funds (ETFs), Stocks, and Managed investment programs. This variety further supports the self-directed nature, allowing individuals to tailor their portfolio to their specific needs.
• Tax-Deferred Growth: Like RRSPs, investments held within a RRIF (including self-directed ones) grow on a tax-deferred basis. This means earnings and gains are not taxed until they are withdrawn from the RRIF.

In essence, self-directed RRIFs provide the account holder with the flexibility to choose and manage the specific investments held within their fund, mirroring the self-direction capabilities of RRSPs, while still benefiting from tax-deferred growth.

RRIF Minimum Withdrawal Table and Rates: Rules and Guidelines

The federal government mandates specific RRIF withdrawal rates and rules that determine your minimum annual withdrawals based on your age. These RRIFs minimum requirements ensure you begin withdrawing funds from your account at the beginning of each year, though you can continue to hold Canadian registered accounts like RRSP or FHSA and make transfers between them according to established rules.

As a RRIF holder, you must withdraw a minimum amount each time the calendar year begins, with government-mandated payments starting December 31 of the year you establish your account. First-year withdrawing is not subject to these requirements, though subsequent years require minimum withdrawals that are subject to withholding taxes and fees as required by federal government regulations.

The sources provide comprehensive details regarding Registered Retirement Income Fund (RRIF) minimum withdrawal tables and rates, outlining the rules, calculation methods, and historical changes.

Calculation of Minimum Withdrawal: The minimum RRIF withdrawal each year is determined by a percentage that is calculated based on the account holder’s age (or their younger spouse’s/common-law partner’s age if elected) and the total value of the RRIF plan on January 1 of that year.

• For ages 70 or younger, the withdrawal rate is calculated using a formula: 1 divided by (90 minus your current age). For example, if you are 68 and have a $400,000 RRIF balance, the calculation is 90 – 68 = 22, then 1/22 = 4.55%, resulting in a mandatory minimum withdrawal of $18,200.
• For ages 71 or older, the RRIF withdrawal rate is based on specific percentage factors. These percentages increase as you age, meaning your minimum withdrawal amount will also increase.
• There is no RRIF minimum withdrawal required in the first year you open your RRIF. Payments are not required until the calendar year following the year the RRIF account was opened.

Minimum Withdrawal Tables and Rates: The sources provide several tables illustrating the RRIF minimum withdrawal percentages at various ages. These tables reflect the percentages per year:

• Ages 55-59: Rates range from 2.86% at age 55 to 3.23% at age 59.
• Ages 60-69: Rates range from 3.33% at age 60 to 4.76% at age 69.
• Ages 70-79: Rates range from 5.00% at age 70 to 6.58% at age 79.
• Ages 80-89: Rates range from 6.82% at age 80 to 10.99% at age 89.
• Ages 90-95+: Rates start at 11.92% at age 90 and increase to 20.00% at age 95 and older, where it remains until the RRIF is depleted.

Historical Changes to Rates:

• The federal 2015 budget reduced the minimum withdrawal factors. The tables show a comparison between older percentages and the revised 2015 percentages, with the latter generally being lower for ages 71 and above.
• As part of the federal response to the COVID-19 pandemic, RRIF minimum withdrawal amounts were temporarily reduced by 25% for the year 2020. This was implemented by the COVID-19 Emergency Response Act.

Impact and Strategic Considerations Beyond the Minimum: While minimum withdrawals are mandatory, the sources suggest that simply taking the minimum amount may be a “huge mistake” and a “bad play”.

• No Maximum Withdrawal Limit: There are no maximum withdrawal limits for RRIFs; you can withdraw as much as you want. However, any amount withdrawn from your RRIF is taxable income.
• Withholding Tax on Excess Withdrawals: While the minimum withdrawal is paid without withholding tax, any amount withdrawn over the minimum is subject to withholding taxes. These rates vary by province/territory and the amount withdrawn:
  • Up to $5,000: 10% (Federal, except Quebec); 5% (Quebec-Federal) + 15% (Quebec-Provincial).
  • $5,000.01 to $15,000: 20% (Federal, except Quebec); 10% (Quebec-Federal) + 15% (Quebec-Provincial).
  • Over $15,000: 30% (Federal, except Quebec); 15% (Quebec-Federal) + 15% (Quebec-Provincial).
• Strategic Withdrawals: Taking more than the minimum can be a beneficial tax strategy to optimize your income and estate.
  • Withdrawing more from your RRIF earlier can help reduce lifetime taxes and preserve other tax-advantaged accounts like TFSAs. For example, a 72-year-old taking $20,000 instead of $15,840 initially saved $400 in taxes. A 62-year-old strategically withdrawing more from their RRIF early saved $15,000 in taxes over their lifetime and left $15,000 more in their estate.
  • It can help average out your income in retirement, spreading out the tax you pay.
  • If you don’t need the full minimum payment, consider reinvesting the surplus into a Tax-Free Savings Account (TFSA) or a non-registered account, allowing the money to continue growing tax-efficiently. Withdrawals from a TFSA do not affect eligibility for income-tested government benefits like OAS or GIS.
  • “In-kind” withdrawals allow you to transfer investments directly to a non-registered account or TFSA instead of taking cash, potentially avoiding redemption fees and withholding tax on the minimum amount.
• Impact on Government Benefits: RRIF withdrawals are taxable income and can impact your eligibility for income-tested government benefits like the Old Age Security (OAS) and Guaranteed Income Supplement (GIS), potentially leading to an OAS clawback. Strategic withdrawals can help minimize this impact.
• Pension Income Tax Credit: The first $2,000 withdrawn from a RRIF (if the holder is 65 or older) is eligible for a federal tax credit (15% or $300 saving) and often a provincial tax credit, which can vary.
• Spousal RRIF: Basing minimum payments on a younger spouse’s age can result in lower minimum payments, allowing for longer tax-deferred growth. However, this decision cannot be changed later.
• Professional Advice: Given the complexity and impact on overall financial planning, it is strongly recommended to consult a financial advisor or tax professional to develop a personalized RRIF withdrawal strategy.

RRIF Conversion, Withdrawal Rules and Calculations

Understanding the rules and calculations governing RRIF withdrawals, as well as their tax implications, is vital for effective financial management in retirement.

Individuals can convert their RRSP to a RRIF at any time. However, it is mandatory to convert an RRSP to a RRIF or an annuity, or withdraw all funds as a lump sum, by the end of the calendar year in which the individual turns 71. Once an RRSP is converted, no further contributions can be made to the RRIF. Payments from a RRIF are not required until the calendar year following the year the RRIF account was opened.

1. Minimum Withdrawals: The primary distinguishing feature of a RRIF, compared to an RRSP, is the mandatory annual minimum withdrawal. This minimum payment is calculated as a percentage of the RRIF’s total value at the beginning of each calendar year (specifically, on January 1st).

• Calculation for individuals under age 71: For those aged 70 or less at the beginning of the year, the minimum payment is determined by a formula: RRIF market value on January 1st of the current year divided by (90 minus age on January 1st of current year). For example, a 68-year-old with a $400,000 RRIF balance would have a minimum withdrawal of $18,200 (calculated as $400,000 x (1/22) or 4.55%).
• Calculation for individuals aged 71 and older: For individuals aged 71 or older, the minimum payment is based on a government-established percentage of the RRIF’s market value. This percentage increases as the account holder ages. For instance, a 72-year-old’s minimum withdrawal rate is 5.40%, and a 95-year-old’s is 20.00%. After age 95, the minimum remains at 20% until the RRIF is depleted.
• First-Year Exception: There is no minimum RRIF withdrawal required in the first year you open your RRIF.
• Spousal Age Option: You have the option to base your RRIF minimum withdrawals on the age of your spouse or common-law partner if they are younger than you. This strategy allows for lower minimum payments, enabling your funds to remain in the RRIF longer and continue to grow tax-deferred. However, this decision is irreversible.
• Tax Implications of Minimums: The minimum RRIF withdrawal is considered taxable Canadian income. However, the minimum withdrawal amount is not subject to withholding tax at the time of withdrawal. Individuals aged 65 or older (or in the year of death of their spouse) may be eligible to claim a pension income tax credit on the first $2,000 of RRIF income, which can reduce federal income tax by 15% (up to $300). Many provinces also offer a similar credit.

2. Maximum Withdrawals: There are no maximum withdrawal limits for RRIFs. You can withdraw as much as you want from your account at any time.

3. Withdrawing More Than the Minimum: While there’s no maximum, any amount withdrawn from a RRIF above the minimum is subject to withholding tax.

• Withholding Tax Rates: These rates vary based on the amount withdrawn and the province. Outside Quebec, the general rates are: 10% for up to $5,000, 20% for $5,000.01 to $15,000, and 30% for over $15,000. Quebec has different federal and provincial withholding tax rates. Even with withholding tax deducted, you might still owe more tax when filing your annual return, depending on your total income and tax situation.
• Strategic Considerations for Exceeding Minimums:
  • Potential Tax Savings and Estate Growth: Taking out only the minimum RRIF amount can be a “huge mistake,” potentially costing tens to hundreds of thousands of dollars over retirement and at death. Strategies suggest withdrawing more than the minimum amount in earlier years can lead to overall lower lifetime taxes and a larger estate. One example showed a 72-year-old saving $6,000 in taxes and increasing his estate by $2,500 by inflating RRIF withdrawals by 2.5% annually and depleting the RRIF by age 90, while preserving his TFSA. Another example for a 62-year-old demonstrated $15,000 less paid to the CRA and $15,000 more in the estate by aggressively drawing down the RRIF early.
  • Spreading Out Tax Liability: If you have a large RRSP, converting it to a RRIF and withdrawing income earlier can help spread out your tax liability, rather than putting off withdrawals until later.
  • Optimizing Withdrawals for Tax Brackets: Careful planning to withdraw just enough to cover living expenses while staying below the next tax bracket can minimize your tax burden. Taking payments earlier or more than needed may unnecessarily place you in a higher marginal tax bracket.
  • Loss of Tax-Deferred Growth: Once funds are withdrawn from your RRIF, you will lose the benefit of tax-deferred growth on those amounts.

4. Withdrawal Timing and Methods:

• Withdrawal Schedule: You can choose a withdrawal schedule that suits your needs, such as weekly, monthly, quarterly, semi-annually, or annually. Some suggest withdrawing a lump sum at the end of the year to allow the RRIF to grow longer.
• “In-Kind” Withdrawals: If you don’t need the RRIF income immediately, you may be able to transfer investments directly from your RRIF to a non-registered account or a Tax-Free Savings Account (TFSA), provided you have contribution room. This is known as an “in-kind” withdrawal. This avoids redemption fees and withholding tax on the minimum amount, though the withdrawal is still included in your income for tax filing purposes.
• Consolidating Accounts: If you have multiple RRSP accounts, consolidating them with one financial institution before converting to a RRIF can simplify administration and investment tracking.

Impact on Government Benefits

RRIF withdrawals are fully taxable income in the year they are withdrawn. This taxable income can affect your eligibility for income-tested government benefits.

• Old Age Security (OAS) Clawback: If your income exceeds a certain threshold, your RRIF withdrawals can trigger an OAS clawback, meaning your OAS pension may be reduced. Careful planning of RRIF withdrawals can help minimize this impact.
• Guaranteed Income Supplement (GIS) and Shelter Aid for Elderly Renters (SAFER): RRIF income is considered taxable income and can reduce or eliminate eligibility for benefits like GIS and SAFER. In contrast, withdrawals from a TFSA are not considered taxable income and therefore do not impact eligibility for GIS or other government credits and benefits.
• Strategic Deregistration for Benefits: In specific cases, like Carol’s, deregistering the entire RRIF and taking the tax hit in one year might be a strategy to maximize future income-tested benefits like GIS and SAFER. By eliminating taxable RRIF income in subsequent years and moving the after-tax proceeds to a TFSA, future benefits can be significantly larger. This can result in a large tax bill and a temporary loss of benefits in the subsequent year, but it can ensure investments are never depleted.

Estate Considerations

Upon the death of the RRIF annuitant, any remaining funds in the RRIF become taxable income, unless a qualifying beneficiary is designated. Naming a spouse or common-law partner as a “successor annuitant” allows the RRIF to transfer directly to them, continuing payments without interruption and minimizing estate administration and taxes. Funds can also be transferred tax-free to a financially dependent child or grandchild under 18 with a disability, or deferred by purchasing annuities for children without disabilities until age 18.

Given the complexities of RRIF withdrawals, taxation, and their impact on various benefits, it is consistently recommended to consult with a financial advisor or tax professional to develop a personalized retirement plan.

RRIF minimum withdrawal rates

Review the tables below to find what your RRIF minimum withdrawal percentage is. Keep in mind, there’s no RRIF minimum withdrawal required in the first year you open your RRIF.

RRIF withdrawal tables

RRIF minimum withdrawal for ages 55-59

RRIF minimum withdrawal for ages 60-69

RRIF minimum withdrawal for ages 70-79

RRIF minimum withdrawal for ages 80-89

RRIF minimum withdrawal for ages 90-95+

RRIF maximum withdrawals

There are no maximum withdrawal limits for RRIFs. You can withdraw as much as you want from your account. But keep in mind that you’ll be taxed on any amount you withdraw from your RRIF.

Calculation Methods by Age

If you are age 70 or under, the RRIF withdrawal rate is calculated in a two-step calculation:

1. 90 minus your current age
2. Divide the number 1 by the number from your calculation above

For example, if you are 68 years old and have a RRIF account balance of $400,000 on December 31 of the previous year, the calculation would be:

• 90 – 68 = 22
• 1/22 = 4.55%
• $400,000 x 4.55% = $18,200
• The mandatory minimum withdrawal for the year would be $18,200

If you are 71 or older, the RRIF withdrawal rate is based on the prescribed factors chart established by the Canadian government.

Chart – Prescribed factors

The Canada Revenue Agency provides official RRIF minimum withdrawal chart percentages that vary based on whether your account qualifies under different historical categories. These prescribed factors determine your mandatory annual withdrawal amount based on your age or your spouse’s age if elected.

Spousal or common-law partner withdrawals

If you intend to minimize the money withdrawn from your RRIF, you can elect to receive payment calculations based on your spouse or common-law partner’s age if they are younger than you. This election must be made by the date you begin receiving payments and will remain in effect for the term of your RRIF. Consult with a financial advisor to explore whether this option makes sense for your specific situation.

Understanding RRIF Fundamentals

What is a RRIF?

A Registered Retirement Income Fund (RRIF) is an investment account that serves as the continuation of your Registered Retirement Savings Plan (RRSP) after maturity. When you’re nearing retirement and ready to start drawing income from your accumulated savings, converting to a RRIF provides the framework for systematic withdrawals while maintaining tax-deferred growth on your remaining investments.

How does a RRIF work?

A RRIF must be opened by December 31 of the year you turn 71 and can be funded by transferring assets from your RRSP, Spousal RRSP, or in certain situations from other registered plans. Unlike your original savings accounts, contributions to RRIF accounts are not permitted, as these accounts operate on a tax-deferred basis solely for withdrawal purposes.

What are the benefits of a RRIF?

Key advantages include tax-deferred growth on earnings from investments held in your RRIF account until withdrawn. While the government sets minimum annual requirements for how much you must withdraw each year, you retain the ability to withdraw money whenever you want beyond these minimums, though amounts above the minimum are subject to withholding tax. Upon death, RRIF assets can transfer to a spouse, common-law partner, or eligible beneficiary, and you maintain the ability to self-direct and select investments within self-directed accounts.

RRIF investments

Assets transferred to your RRIF account continue to appreciate, receive dividends, and earn interest while held within the account. Edward Jones and other financial institutions offer various investment options including:

• Government bonds
• Corporate bonds
• Guaranteed investment certificates (GICs)
• Mutual funds
• Exchange traded funds (ETFs)
• Stocks
• Managed investment program

Taxation of RRIF Withdrawals

How much you end up keeping the money after tax depends on your Understanding of the taxation of RRIF withdrawals, and their impact on government benefits is crucial for effective retirement planning.

• Taxable Income Every dollar withdrawn from a RRIF is considered fully taxable income in the year it is withdrawn. This amount is added to your total taxable income for the year.
• Withholding Taxes
  • While the minimum RRIF payment is not subject to withholding tax at the time of withdrawal, any amount withdrawn above the minimum is subject to withholding tax.
  • The withholding tax rates vary based on the amount withdrawn and the province. For withdrawals outside of Quebec, the rates are generally: 10% for amounts up to $5,000, 20% for amounts between $5,000.01 and $15,000, and 30% for amounts over $15,000. Quebec has different federal and provincial withholding tax rates.
  • Even if withholding tax is deducted, you might still owe more tax when filing your annual tax return, depending on your total income and tax situation.
• Pension Income Tax Credit If you are 65 or older (or in the year of death of your spouse), you may be eligible to claim a tax credit on the first $2,000 of RRIF income, which can reduce your federal income tax by 15% (up to $300). Many provinces also offer a similar tax credit, though the amount varies.

Impact on Government Benefits

RRIF withdrawals, being taxable income, can affect your eligibility for income-tested government benefits.

• Old Age Security (OAS) Clawback If your income exceeds a certain threshold, your RRIF withdrawals can trigger an OAS clawback, meaning your OAS pension may be reduced.
• Guaranteed Income Supplement (GIS) and Shelter Aid for Elderly Renters (SAFER) Income from a RRIF is considered taxable income and can reduce or eliminate eligibility for benefits like GIS and SAFER. In contrast, withdrawals from a Tax-Free Savings Account (TFSA) are not considered taxable income and therefore do not impact eligibility for GIS or other government credits and benefits.

Strategies for Optimizing RRIF Withdrawals, Taxation, and Benefits

Financial experts suggest various strategies to minimize tax burdens and maximize retirement income and benefits:

• Optimizing Withdrawal Amounts
  • Taking out the minimum RRIF amount is a common practice, but it can be a significant mistake costing tens to hundreds of thousands of dollars over retirement and at death.
  • It may be beneficial to withdraw more than the minimum amount from your RRIF in earlier years, especially if your marginal tax rate is lower. This can lead to overall lower lifetime taxes and a larger estate.
  • Aggressively drawing down the RRIF early can potentially put more money back in your pocket and save on taxes.
  • One example showed that a 72-year-old man saved $6,000 in taxes and increased his estate by $2,500 by inflating his RRIF withdrawals by 2.5% annually, emptying the RRIF by age 90, and preserving his TFSA. Another example for a 62-year-old showed $15,000 less paid to CRA and $15,000 more in the estate by taking more than the minimum early on.
• Utilizing Tax-Free Savings Accounts (TFSAs)
  • If you don’t immediately need the full amount of your RRIF withdrawal, consider reinvesting the surplus into a TFSA (if you have contribution room). Funds in a TFSA grow tax-free, and all withdrawals are tax-free, without affecting income-tested government benefits like OAS or GIS. This can create more flexibility for emergencies or additional income needs later in retirement.
  • For individuals likely to be eligible for GIS and other benefits, contributing to a TFSA instead of an RRSP during accumulation is often suggested by planners because TFSA withdrawals have no impact on these benefits.
• Income Splitting with a Spouse
  • If your spouse or common-law partner is younger, you have the option to base your minimum RRIF withdrawals on their age instead of your own. This allows for lower minimum payments, enabling your funds to remain in the RRIF longer and continue to grow tax-deferred.
• Averaging Out Income Instead of putting off withdrawals, withdrawing income earlier can help spread out your tax liability, especially if you have a large RRSP.
• “In-Kind” Withdrawals If you don’t need cash, you might be able to transfer investments directly from your RRIF to a non-registered account or TFSA (if room is available). This can avoid redemption fees and withholding tax on the minimum withdrawal amount, though the withdrawal is still included in your income for tax filing.
• Early Deregistration (for specific benefit maximization) In specific cases, like Carol’s, deregistering the entire RRIF and taking the tax hit in one year might be beneficial. This strategy aims to maximize future income-tested benefits like GIS and SAFER by eliminating taxable RRIF income in subsequent years. The after-tax proceeds are then deposited into a TFSA, where withdrawals are non-taxable and do not affect benefit eligibility. This can lead to significantly larger GIS and SAFER benefits in future years and ensure investments are never depleted. However, this strategy can result in a large tax bill in the year of deregistration and a temporary loss of benefits in the subsequent year.

Estate Considerations

• Any remaining funds in your RRIF at the time of death become taxable income, unless a beneficiary, such as a spouse or common-law partner, is designated as a successor annuitant.
• Naming a spouse as a successor annuitant allows the RRIF to transfer directly to them, minimizing estate administration, taxes, and avoiding a large, taxable withdrawal in the year of death.
• Funds can also be transferred tax-free to a financially dependent child or grandchild under 18 with a disability, or deferred by purchasing annuities for children without disabilities until age 18.

Given the complexity and personalized nature of RRIF strategies, it is consistently advised to consult with a financial advisor or tax professional to develop a plan tailored to your unique circumstances and goals.

Tax Implications and Withdrawal Strategies

How much tax do I pay on RRIF withdrawals?

The amount of tax you pay on RRIF withdrawal depends on your individual circumstances and total income received during the year, including deductions and credits you’re entitled to claim. When you file your tax return, your financial institution will report the amount you withdrew to the CRA (or Revenu Quebec). Withholding tax rates vary significantly, ranging from 10% to 30% for amounts above the minimum, and this applies differently across provinces and territories. In Quebec, rates are 5% federally and 15% provincially, but remember that the total tax due may differ from what was withheld.

Should I take more than the RRIF minimum withdrawal?

Whether to take more than the minimum RRIF withdrawal amount depends on your taxable income situation and individual circumstances. Taking additional amounts beyond the minimum can be beneficial for tax planning purposes.

How do I avoid tax on a RRIF?

While you cannot avoid paying taxes on RRIF withdrawals entirely, effective overall tax planning can help you pay less in total taxes over your retirement years.

How do I calculate my minimum RRIF withdrawal?

Your minimum RRIF withdrawal is calculated using your RRIF market value as of Jan. 1 of each calendar year, multiplied by the annual minimum withdrawal percentage corresponding to your age (or your spouse’s age if elected). Refer to the tables above to find the appropriate percentage for your age at the beginning of the year.

What is the $2,000 tax credit for RRIF withdrawals?

You can claim a tax credit on up to $2,000 of income you receive from RRIF, pension plan, or annuities if you’re a holder of locked-in registered retirement funds and are age 65 or older (or in the year of death of your spouse). This nonrefundable credit is applied to reduce the amount of money you owe in federal taxes, calculated at the lowest federal tax rate of 15%, providing up to $300 in tax savings. Be sure to track your RRIF withdrawal date to ensure you’re meeting the required minimums for withdrawals. Many provinces offer similar credits, though the amounts vary, with some provinces offering credits on $1,000 rather than $2,000.

Payment Options and Withdrawal Management

Various payment options available

You have multiple options for receiving regularly scheduled minimum annual payments from your RRIF. These can be taken in cash or in-kind through various methods including cheque, transfer to a non-registered account, or electronic fund transfer (EFT) to your bank account. You can elect to receive payments bi-monthly, monthly, quarterly, semi-annually, or annually based on your income needs.

Deregistration fees and withholding tax on unscheduled RRIF withdrawals

Although you may withdraw any amount from your RRIF at any time, additional withdrawals could be subject to deregistration fees and withholding tax. Unscheduled RRIF payments are handled differently than scheduled payments:

Scheduled RRIF payments:

• No deregistration fee charged
• No withholding tax is required on amounts taken at or below the calculated minimum
• Minimum RRIF payment must be withdrawn by December 31 each year

Unscheduled RRIF payments:

• A deregistration fee of $25 + tax may apply
• No withholding tax is required on amounts taken at or below the calculated minimum
• A minimum of $145 must remain in the account for partial deregistration; less than $145 will be considered full withdrawal/deregistration

Please notify your advisor at least two business days before your next scheduled payment if your current payment arrangement isn’t working for you.

Taking your RRIF withdrawals “in kind”

If you don’t need the income from your RRIF right away, you don’t have to take your minimum withdrawal amount in cash. Instead, you may be able to transfer the investments directly to a non-registered account or TFSA (provided you have contribution room remaining in that year). This is known as an “in kind” withdrawal.

In kind withdrawals often work best with mutual funds, stocks and bonds. A GIC can be transferred in kind only if it is transferable and assignable.

Example scenario:

• If your minimum withdrawal amount is $4,000
• And your RRIF has $4,000 worth of mutual fund units
• You could transfer those units to a non-registered mutual fund account

How it works:

• You avoid any redemption fees because you’re not selling the units, but you may have to pay a transfer fee
• You don’t have to pay withholding tax because you’re only withdrawing the minimum amount from your RRIF
• Like any RRIF withdrawal, you’ll have to include the $4,000 withdrawal in your income when you file your tax return

Advanced RRIF Strategies

Attribution rules and rollback options

Attribution rules can be beneficial for the owner of a spousal RRSP or RRIF withdrawal from the account. If contributions were made to the spousal account in the contribution year or two preceding years, the attribution rules apply to the contributor rather than the account holder. This applies only to mandatory minimum withdrawals from RRIFs opened when the spouse is above the minimum age.

You can roll contribution amounts from a RRIF back to an RRSP if your spouse is younger than 71 and has income. This rollback option allows you to transfer funds to your own RRSP and withdraw only the calculated minimum amount for the current year.

How much can you withdraw from your RRIF and when?

The timing of RRIF withdrawals is governed by federal government regulations that establish the minimum amount based on a percentage of your account’s value each year. While there is no maximum amount you can withdraw (amounts increase as you get older), you can base calculations on your spouse’s younger age if applicable. You can structure your taxable income through monthly, quarterly, semi-annual, or annual withdrawals from your spousal RRIF, and designated beneficiaries at financial institutions can help you develop an income strategy that coordinates with other income sources when possible.

How the minimum withdrawal amount is calculated

The minimum withdrawal amount is based on the value of your RRIF on December 31 of the previous year. For example: Let’s say on January 1, 2022 you were 82. The value of your RRIF on December 31, 2021 was $200,000. Based on the minimum withdrawal amount of 7.38%, you must withdraw at least $14,760 in 2022. This means you can leave an additional $185,240 in your RRIF to continue to grow tax deferred.

When you reach age 95, the minimum amount remains at 20% until your RRIF is used up.

What if you take out more than the minimum amount from your RRIF?

Taking RRIF withdrawals above the minimum amount has specific tax implications. While there are no maximum annual limits on withdrawals, amounts exceeding the minimum become taxable and subject to withholding tax.

Even though withholding tax is deducted from withdrawals that exceed the minimum amount, you may still owe more tax later when you file your tax return. It depends on your total income and tax situation.

Estate Planning and Beneficiary Considerations

Reasons you may want to use both RRIFs and annuities

Using both RRIFs and annuities in retirement provides guaranteed income for life regardless of market performance while keeping some savings invested for potential growth. This approach allows you to maintain capital for your estate while having the flexibility to purchase additional annuities if interest rates rise, providing both guaranteed income security and investment growth potential.

Using Annuities with RRIFs: Enhancing Your Retirement Income Strategy

Annuities are presented as a significant option for managing retirement income, often in conjunction with a Registered Retirement Income Fund (RRIF), to optimize financial well-being in retirement.

Here’s what the sources indicate about considering annuities within your retirement strategy:

• Conversion Option from RRSP: By the end of the calendar year in which an individual turns 71, it is mandatory to convert an RRSP to either a RRIF or a life annuity, or withdraw all funds as a lump sum. This positions annuities as an alternative or complementary vehicle to RRIFs for drawing retirement income.
• Purpose and Benefits of Annuities:
  • Annuities are a way to generate income from the savings accumulated in an RRSP.
  • A primary benefit of annuities is their ability to provide guaranteed income for life, regardless of market performance. This can alleviate concerns about outliving one’s savings, addressing “longevity risk”.
  • For those worried about their investments losing money, annuities can help eliminate this risk by providing a predictable income stream.
• Using Both RRIFs and Annuities (Hybrid Strategy):
  • The sources explicitly suggest exploring how to use both RRIFs and annuities in retirement. This allows for a diversified approach to retirement income.
  • A common strategy involves dividing your money between RRIFs and annuities based on your specific income needs and saving priorities.
  • While annuities provide guaranteed income, RRIFs allow remaining funds to stay invested with the potential for continued growth.
  • If interest rates are low, a strategy might be to stagger the purchase of annuities over several years, allowing for the possibility of buying additional annuities if rates rise later.
• Key Questions to Ask Before Choosing an Annuity: Before committing to an annuity, it’s crucial to assess your overall financial picture, goals, and need for security. Considerations include:
  • Existing Income Sources: How much income will you receive from government pensions (like CPP and OAS) and workplace pensions? This helps determine how much additional income an annuity needs to provide.
  • Investment Risk Tolerance: Are you concerned about your investments losing money? Annuities can offer a sense of security by guaranteeing payments.
  • Inflation Protection: Does the annuity offer options to protect against inflation?.
  • Tax Implications: Understand how annuity payments will be taxed in your overall retirement income plan compared to RRIF withdrawals.
  • Longevity Concerns: Are you worried about outliving your savings? Life annuities provide payments for the rest of your life.
  • Estate Planning: Do you wish to leave capital for your estate? Unlike a RRIF, an annuity may not leave a capital amount for beneficiaries unless specific options are chosen.
• Specific Use Case for Beneficiaries: In the event of the RRIF annuitant’s death, if there are financially dependent children without disabilities, tax can be deferred by purchasing annuities that pay out to them until they reach age 18.
• Professional Advice is Crucial: Given the complexities and individual nature of retirement planning, it is consistently recommended to consult with a financial advisor to explore whether an annuity is the right option for your specific situation.

Questions to ask before choosing an annuity

Consider your total financial picture, your goals, and your need for safety before choosing an annuity. You’ll want to know answers to the following questions:

1. How much income will you get from government and workplace pensions? Determine what additional income an annuity would need to provide beyond your existing workplace and government pension sources.
2. Are you worried about your investments losing money? Annuities can help eliminate the risk of losing money on your retirement investments by providing guaranteed income regardless of market conditions.
3. Are you concerned about inflation? Consider whether the annuity offers inflation protection options, as life annuities with fixed payments may lose purchasing power over time.
4. How much tax will you pay? Understand how annuity payments will be taxed compared to RRIF withdrawals as part of your overall retirement income, considering how they interact with workplace pensions and your tax-deferred savings. Remember that minimum RRIF withdrawals are not subject to withholding tax.
5. Are you concerned about outliving your savings? Life annuities provide payments for your entire lifetime, eliminating longevity risk and the worry of depleting your savings.
6. Do you want to leave some capital for your estate? Unlike annuities, which may offer limited options for leaving monthly payment capital to your estate, RRIF savings can be designated to beneficiaries and may continue growing for estate purposes.

Summary

RRIF withdrawal date requirements form the foundation of retirement income planning, governing when and how you must begin drawing from your RRSP savings converted to retirement income vehicles. Understanding minimum withdrawal amounts, tax-free growth opportunities (until withdrawal), age-based percentage increases, and withholding tax implications helps you optimize your strategy. Whether you choose to exceed government minimums, coordinate with annuities based on your retirement income priorities, or structure payments around prevailing interest rates, proper planning ensures your guaranteed retirement income aligns with workplace pensions and government pensions while allowing you to divide your money effectively between growth and security objectives.

FREQUENTLY ASKED QUESTIONS