Registered Retirement Income Fund
Encyclopedia
A Registered Retirement Income Fund or RRIF is a tax
-deferred retirement plan under Canadian
tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan
. As with an RRSP, an RRIF account is registered with the Canada Revenue Agency
.
. The withdrawal remains taxable Canadian income, but is eligible for a $2,000 tax credit.
The minimum RRIF withdrawal each year is determined by a percentage, depending on the holder's age
, of the total value of the plan on January 1 each year. The holder of an RRIF may elect to withdraw an amount greater than the minimum RRIF amount for that year, though withholding tax
will apply to this supplementary amount.
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
-deferred retirement plan under Canadian
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan
Registered Retirement Savings Plan
A Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
. As with an RRSP, an RRIF account is registered with the Canada Revenue Agency
Canada Revenue Agency
The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
.
Converting from RRSP
The option exists to convert an RRSP into an RRIF anytime on or before an individual reaches their 71st year. Before the end of the year in which an individual turns 71, it is mandatory to either withdraw all funds from an RRSP plan or convert the RRSP to an RRIF or life annuity. If funds are simply withdrawn from an RRSP, the entire amount is fully taxable as ordinary income; one defers this taxation by transferring investments in an RRSP into an RRIF.Functionality
Investments held inside a RRIF grow in a tax-deferred manner just as with an RRSP. There are two primary differences between an RRSP and an RRIF. The first is that no further contributions can be made once conversion to an RRIF has occurred. The other is a special functionality called a minimum RRIF withdrawal. A minimum RRIF withdrawal is an annual obligatory amount which is cashed out of a RRIF and sent to the account-holder without withholding taxWithholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
. The withdrawal remains taxable Canadian income, but is eligible for a $2,000 tax credit.
The minimum RRIF withdrawal each year is determined by a percentage, depending on the holder's age
Ageing
Ageing or aging is the accumulation of changes in a person over time. Ageing in humans refers to a multidimensional process of physical, psychological, and social change. Some dimensions of ageing grow and expand over time, while others decline...
, of the total value of the plan on January 1 each year. The holder of an RRIF may elect to withdraw an amount greater than the minimum RRIF amount for that year, though withholding tax
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
will apply to this supplementary amount.
See also
- Canada Revenue AgencyCanada Revenue AgencyThe Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
- Income TaxIncome taxAn income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
- Registered Retirement Savings PlanRegistered Retirement Savings PlanA Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
- RetirementRetirementRetirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don't allow the person to...