A Registered Retirement Income Fund (RRIF) is a plan that is designed to provide a steady stream of income during retirement from funds provide by a RRSP that has matured. Similar to an RRSP, a wide range of investments can be held in a RRIF and the income on the balance accumulates tax-free. However, a specific percentage of the plan’s assets must be withdrawn each year as income.
RRIFs are designed to provide a constant income from the retirement savings that you have built up in your RRSP, but also to spread out the taxation of these savings over the retirement years. When converting an RRSP to a RRIF, your investments can still grow tax-deferred (tax-sheltered), while you systematically make your monthly, quarterly, semi-annual or annual (at the end of the year) withdrawals from the RRIF, in order to supplement your retirement income.
RRIF payouts are considered a part of the retired beneficiary’s normal income and are taxed as such by the Canadian Revenue Agency (CRA) in the year that the beneficiary receives each payout.
The amount of income you receive is based on a pre-determined percentage of the plan’s assets that remain each year; although you can withdraw extra cash when needed (subject to withholding tax). There is a minimum amount that need be taken and a limit to how much can be withdrawn above that amount.
Your spouse can be made the plan beneficiary so that in the event of death, the amount remaining in your RRIF will transferred to your spouse without any tax implications. Of course, the surviving spouse will pay taxes on this money as it is withdrawn.
RRIFs may be obtained through insurance companies, banks or any kind of licensed financial intermediary. The Government of Canada is not the carrier for RRIFs; it merely registers them for tax purposes.