RRIF explained: how your RRSP becomes retirement income

What a RRIF actually is

A RRIF is essentially the withdrawal-phase version of your RRSP. The investments inside it — stocks, bonds, ETFs, mutual funds, GICs — don't have to change, and they keep growing tax-deferred exactly as they did in the RRSP. What changes is the direction of the money: instead of contributing, you're required to take a minimum amount out every year and pay tax on it as income.

You don't need to wait for a deadline to open one. You can convert some or all of an RRSP to a RRIF at any age once the RRSP exists, which is common for people who retire early and want income before the mandatory cutoff. You can also hold a RRIF and an RRSP at the same time if you only convert part of your savings.

The one date that isn't flexible: your RRSP must be converted to a RRIF (or an annuity, or cashed out) by December 31 of the year you turn 71. Cashing out the whole balance in one shot is rarely a good idea, since it all becomes taxable income that year — a RRIF lets you spread the tax hit over the rest of your life instead.

The rules you can't avoid: minimums, deadlines, and tax

Once a RRIF is open, the CRA requires you to withdraw a minimum amount every calendar year after the year you open it — there's no minimum in the first year. The minimum is a percentage of the RRIF's value on January 1, and that percentage rises each year as you age, starting relatively low in your early 70s and climbing significantly by your mid-90s. The exact percentage for your age changes periodically, so confirm the current table on the CRA website rather than relying on a remembered number.

There's no maximum withdrawal — you can take out as much as you want, whenever you want, subject to how your account is structured. The catch is tax: every dollar you withdraw from a RRIF, minimum or not, is added to your taxable income for the year, just like RRSP withdrawals were before.

• Withholding tax is only deducted on amounts you withdraw above the required minimum — the minimum itself isn't withheld at source, though it's still taxable when you file. - Withdraw too much in one year and you can push yourself into a higher bracket, or trigger clawbacks on income-tested benefits. - You choose the payment frequency (monthly, quarterly, annually) and can usually change your withdrawal amount whenever you like, as long as it meets the annual minimum.

Strategies worth knowing about

A spousal RRIF lets you calculate the minimum withdrawal using the younger spouse's age instead of your own, which lowers the required minimum and keeps more money growing tax-deferred for longer. This election has to be made when the RRIF is set up, so it's worth discussing with an advisor before converting if you and your spouse have a meaningful age gap.

RRIF income also unlocks two tax breaks that RRSP withdrawals generally don't. Once you're 65 or older, RRIF payments qualify as eligible pension income, which means you can claim the pension income tax credit and split up to half of that income with your spouse for tax purposes — potentially a meaningful saving if one spouse is in a higher bracket.

Because there's no maximum withdrawal, some retirees use their RRIF as a flexible income source — drawing more in low-income years and sticking closer to the minimum when other income is higher — rather than a fixed annuity-style payment.

What happens to a RRIF when you die

If you name your spouse or common-law partner as the successor annuitant, the RRIF simply continues in their name with no tax triggered at your death — payments carry on uninterrupted. Naming them as a regular beneficiary instead still allows a tax-deferred rollover into their own RRSP or RRIF, but requires more paperwork.

Without a spouse, or if you name someone else, the full value of the RRIF is generally included as income on your final tax return in the year you die, which can mean a large tax bill for your estate. A financially dependent child or grandchild may qualify for a rollover in some circumstances, so it's worth reviewing your beneficiary designations periodically, not just once at setup.

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