RRIF Withdrawal Rules in Canada

Funds held within a RRIF can be invested and allowed to grow tax free until you withdraw them. Unlike other registered accounts, you can’t make any new contributions to a RRIF. The only way to fund a RRIF is by transferring money into it from an RRSP or any other retirement savings plan like a RRIF, or from a First Home Savings Account (FHSA).

Lots of people use RRSPs to save for their retirement, but RRSPs must be closed by the end of the year you turn 71. At that point, you can either withdraw your savings, convert them into an annuity, or transfer them to a RRIF. RRIFs are tax sheltered accounts that let you invest in a range of securities such as stocks, bonds, mutual funds, Exchange Traded Funds (ETFs) and Guaranteed Investment Certificates (GICs). Any revenue earned from your investments will be tax-free until you withdraw it, allowing your savings to continue to grow.

RRIF withdrawal rules

RRIFs provide a source of regular income during your retirement. You’re required to make minimum withdrawals from your RRIF each year. How much you need to withdraw depends on your age and the total value of your RRIF. 

Minimum withdrawals and requirements for RRIFs

You need to withdraw a minimum percentage of the total value of your RRIF each year. The percentage to be withdrawn depends on your age or the age of your spouse or common-law partner. The older you are, the higher the percentage that needs to be withdrawn.

For example, if your RRIF is valued at $1,000,000 and you’re 75, you’d need to make a minimum withdrawal of $58,200 (5.82% x 1,000,000). Whereas if you were 85, you’d need to withdraw a minimum of $85,100 (8.51% x 1,000,000).

Minimum withdrawal amounts are considered taxable income on your annual tax return but won’t be subject to withholding tax.

There are different withdrawal calculations for RRIFs opened before the end of 1992. You can find them here.

Maximum withdrawals & tax withholdings on excess withdrawals

There are no maximum withdrawal limits, so you can withdraw as much as you want from your RRIF each year. However, anything you withdraw above your required minimum payment amount will be subject to withholding tax.

Withholding tax rates for people living outside of Quebec are:

10% on withdrawals up to $5,000

20% on withdrawals between $5,001 and $15,000

30% on withdrawals over $15,000

Tax withheld is reported on your annual tax return and, depending on your marginal tax rate, you may need to pay additional taxes or could be eligible to receive some of it back as a tax refund.

You can’t make any new contributions to a RRIF, but you can transfer funds to a RRIF from certain other registered/income accounts. RRIFs can be self-directed or managed on your behalf. The same rules generally apply to both.

Within certain limitations property can be transferred to a RRIF from:

• A PRPP (Pooled Registered Pension Plan) or unmatured RRSP.
• A matured RRSP, including direct transfers of commutation payments from an RRSP annuity.
• An unmatured RRSP under which your current or former spouse or common-law partner is the annuitant and either of the following circumstances is applicable:
  • Marriage breakdown
  • Death of spouse
• An FHSA

When to convert an RRSP to a RRIF?

RRSPs can be converted to a RRIF at any time, however, most people wait until the year in which they turn 71 and need to close their RRSPs.

Benefits of converting an RRSP to a RRIF

There are several benefits associated with converting an RRSP to a RRIF:

1. RRSP assets can be transferred to a RRIF tax free. Once transferred, the assets held within your RRIF can continue to grow on a tax-deferred basis.
2. RRIFs provide you with a regular source of income and minimum withdrawals aren’t subject to withholding tax.
3. You can choose to set minimum withdrawal amounts based on your spouse’s or common-law partner’s age. If they’re younger, that will reduce your required minimum withdrawals.
4. RRIF withdrawals are eligible for pension splitting.  Individuals 65 years or older can split up to 50% of their eligible pension income with a spouse or common-law partner.
5. If they’re listed as a beneficiary, RRIFs can be transferred to a spouse or common-law partner’s RRSP or RRIF tax free when you die. Spouses can also take over your RRIF and start receiving RRIF payments if they’re named as a successor annuitant. In either case, your RRIF won’t be included as part of your estate for purposes of the estate administration tax (probate).
6. Once you reach age 65, a maximum of $2,000 in pension income, which includes payments from a RRIF, may be used towards the annual pension income tax credit.

RRIF withdrawals are counted towards your annual taxable income and can affect your eligibility for Old Age Security (OAS) and other government benefits. Planning the timing of withdrawals and withdrawal amounts can help you avoid reductions in OAS and other benefits.

RRIF payments can’t be transferred directly into a TFSA. However, securities held within your RRIF can be. You can withdraw securities from a RRIF at their fair market value and transfer them to a TFSA without having to sell them first. You’ll need to include the value of the withdrawal on your annual tax return and tax will be withheld on the fair market value of the securities in excess of your minimum withdrawal amount.

The funds in your RRIF will be counted towards your taxable income on your final tax return. However, there are several things you can do to try and reduce the amount of tax that needs to be paid upon your death. Ask a tax advisor for advice on rules applying to beneficiaries when setting up a RRIF.

You need to make withdrawals from your RRIF even if you don’t need the money. If you have contribution room remaining, you can invest any funds you don’t need in a TFSA where it can continue to grow tax-free.