When you receive payments from your Registered Retirement Income Fund (RRIF), you will be provided with a T4RIF slip. It is important to complete the applicable boxes on the slip, specifically boxes 16 to 37. In these boxes, you need to enter the gross amount of the payment received, without any deductions or tax withheld. It is worth noting that the redemption cost associated with units of a mutual fund is considered an RRIF expense.

What is a Registered Retirement Income Fund (RRIF)?

A Registered Retirement Income Fund (RRIF) can be defined as a retirement fund that operates similarly to an annuity contract, providing income payments to one or more beneficiaries. It is a registered account designed to provide a steady income stream during retirement.

Registered Retirement Savings Plans (RRSPs) allow individuals to accumulate savings for retirement on a tax-sheltered basis. Once converted into a RRIF, these savings continue to grow tax-free while generating a taxable retirement income. The earnings within an RRIF are not subject to taxation. However, when payouts are made, they are considered part of the beneficiary’s taxable income and are subject to taxation by the Canada Revenue Agency (CRA) in the year they are received.

The entity responsible for holding the RRIF is known as the “carrier” of the plan. Carriers can be insurance companies, banks, or other authorized financial intermediaries. The Canadian government registers these RRIF carriers for tax purposes.

How do RRIFs work?

In simple terms, Registered Retirement Income Funds (RRIFs) are designed to provide retirees with a steady income stream from the savings accumulated in their Registered Retirement Savings Plans (RRSPs). By the time the contributor reaches the age of 69, the RRSPs must be converted into an RRIF. This conversion allows individuals to maintain their investments within a tax-advantaged framework while having the flexibility to allocate their assets according to their preferences.

The Canadian government recognizes RRIFs as an arrangement between the individual and a registered carrier, often an insurance company. Assets are transferred to the carrier from an RRSP, another RRIF, or any other eligible Canadian retirement vehicle, and in return, the carrier provides regular payments to the individual. It is possible to have multiple RRIFs, including self-directed RRIFs, which operate under similar rules as RRSPs.

Important Facts About RRIFs

1. Flexibility in Conversion: You have the option to convert your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF) at any time, but it is not mandatory until you reach the age of seventy-one. At that point, your RRSP matures and must be converted to either a life annuity, an RRIF, or deregistered.
2. Seamless Transfer: To convert an RRSP to an RRIF, you need to set up an RRIF account first. The assets from your RRSP can then be smoothly transferred “in kind” to the RRIF without triggering a taxable transaction.
3. Guidance from Financial Institutions: When you open an RRIF account with a financial institution such as a bank, trust, or insurance company, they will provide guidance on the different types of RRIFs and the available investment options. You can have multiple RRIFs, including self-directed RRIFs.
4. RRSP Contribution at Age 71: In the year you turn seventy-one, you are allowed to make an RRSP contribution until December 31.
5. Survivorship and Tax Benefits: One important aspect of RRIFs is that only your RRIF can be transferred to your surviving spouse without interrupting the payments upon your death. Alternatively, if you name your spouse as the beneficiary, your RRIF can be transferred to them tax-free. In both cases, the value of your RRIF is excluded from the calculation of probate fees.

According to the Canada Revenue Agency:

In order to regulate and prevent aggressive tax planning, they have enhanced the existing anti-avoidance rules that apply to Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). These updated guidelines align with the rules for tax-free savings accounts, covering non-qualified investments, prohibited investments, and advantages.

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Benefits of RRIFs:

1. Consistent Income: RRIF provides a steady stream of income throughout your retirement, ensuring a reliable source of earnings.
2. Customizable Investment Options: You have the flexibility to choose how the funds within your RRIF are invested, allowing for personalized investment decisions.
3. Tax-Free Growth: Investments held within the RRIF can grow on a tax-free basis, providing the opportunity for tax-efficient growth within the plan.
4. Seamless Transition: When you transfer funds from your RRSP to a RRIF, the income tax on the transferred amount is deferred until withdrawals are made from your RRIF.

In summary,

When you receive funds from your registered retirement income fund (RRIF), you will receive a T4RIF slip. While you don’t have to pay tax on the income generated within RRIFs, the Canada Revenue Agency (CRA) imposes taxes on these funds.

The CRA taxes the money you receive in the year it is disbursed. The entity or individual that holds the RRIF is known as the “carrier” of the plan. To convert an RRSP into an RRIF, you must first establish an RRIF account. The assets within the RRSP can be smoothly transferred without triggering a tax liability.

It is worth noting that only your RRIF can be transferred to your surviving spouse without interrupting the payments in the event of your death. They will continue to receive payments until they assume ownership.