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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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Freedom 55 Financial is a division of The Canada Life Assurance Company and the information you requested can be found here.

RRIF withdrawal rules

Key takeaways

  • Converting a Registered Retirement Savings Plan (RRSP) to a Registered Retirement Investment Fund (RRIF) is mandatory by age 71, but there could be benefits of doing it earlier. 
  • There are different rules about tax, rates, withdrawal minimums and age limits for a RRIF.
  • Take advantage of income splitting opportunities to lower taxes.

Retirement income comes in many forms. You may have a pension or savings from work, Canadian (or Quebec) Pension Plan, Old Age Security, and your own savings. If you're close to retiring, you've probably started to consider what you’ll do with the money in your Registered Retirement Savings Plan (RRSP). Although you can withdraw that money all at once, many Canadians convert their RRSP into a Registered Retirement Investment Fund (RRIF) or utilize an annuity. 

Let’s look at some of the rules you’ll need to follow when you’re ready to withdraw income from a RRIF. 

Withdrawal age

With a RRIF being an account that is registered with the federal government, there are certain withdrawal age rules that must be followed. Some of these withdrawal age rules include:

  • You must covert your RRSP to a RRIF or annuity by December 31 the year that you turn 71. 
  • A spousal RRSP must be converted to a spousal RRIF by the end of the calendar year the spouse-accountholder turns 71.
  • You can convert your RRSP to a RRIF earlier than age 71 with some benefits, but with each year older, the minimum rate of withdrawal will increase.
  • Withdrawals start the next calendar year after you convert to a RRIF. If you converted in 2022, then you must begin withdrawing funds in 2023.
  • Some benefits of converting your RRSP to a RRIF early can include a reduction or elimination of withdrawal fees, the Pension Income Tax Credit,Opens a new website in a new window avoiding OAS claw backs, and splitting pension income.  

Minimum withdrawal requirements 

All RRIF holders must withdraw a minimum amount each year. Starting the following year after you establish a RRIF, you must be paid a yearly minimum amount. The payout period under your RRIF is for your entire life. Your carrier calculates the minimum amount based on your age at the beginning of each year. However, you can elect to have the payment based on your spouse or common-law partner’s age, but if you do use your spouse’s age, you can’t change it back to your age as it is a one-time choice you’d be making. 

The Canada Revenue Agency (CRA) has set these percentages to ensure that people who hold funds can draw down their savings in retirement without having to pay too much tax in any given year.

Maximum withdrawal limits  

Apart from RRIFs that are locked-in, such as an LRIF or LIF, there is no maximum withdrawal allowed. Additionally, withholding tax will apply to any amount withdrawal over the minimum. 

Tax implications  

Are withdrawals from my RRIF taxable? Yes. Remember all those years you were making RRSP contributions and lowering the income tax you paid? Well, you were postponing those taxes, not avoiding them completely. The good news is that you won’t pay any taxes when you convert your RRSP into a RRIF, because you’re not withdrawing the money right away. The funds you take out of your RRIF each year, however, are taxable in the year you get them.

An additional benefit of doing this is that it may be in a lower tax bracket than you’re currently in, meaning fewer taxes owed.  

Here are some simple rules to remember about RRIFs and taxes:

  • You don’t pay taxes on money in your RRIF if it stays there. This includes the growth of your investments inside the RRIF.
  • You only pay tax on the money you withdraw from your RRIF each year because it is treated as income.
  • If you withdraw more than the minimum amount, the taxes will be withheld at the time of the withdrawal as the financial institutions must collect tax immediately.
  • At death, the RRIF is fully taxable, either upon withdrawal or at death, unless rolled to a spouse or financially dependent child.

Withholding Tax

If you withdraw more than the minimum amount from your RRIF you’ll have to pay withholding tax. The rate of withholding tax depends on how much you take out of your RRIF. The minimum amount does not trigger any withholding tax, but once you exceed the minimum amount, it will apply. All provinces and territories in Canada, except for Quebec, have the same withholding tax rates for residents.

RRIF income splitting

RRIF income can be split for tax purposes between spouses or common-law partners based on their ages. If you're over 65 and both yourself and your spouse are Canadian residents, you're eligible to split any income you withdraw from your RRIF. Pension income other than RRIFs is also eligible.

Splitting your pension income can help you both pay less in taxes. You can split up to 50% of eligible income with your spouse, and you both must choose to receive the pension income each year. Other retirement income plans that you can income split can include: 

RRIF withdrawal rules

The rules for Registered Retirement Income Funds (RRIFs) and your withdrawals can be complex. To summarize the RRIF withdraw rules touched on in this article. Refer to this list:

  • If you own an RRSP, you can convert it to a RRIF to start drawing an income for retirement. You have until December 31 of the year you turn 71 to convert to a RRIF. If you need the income before age 71, you can convert sooner.
  • You can choose your withdrawal amounts if you make the minimum annual withdrawal, which is a set percentage determined by the government. As you get older, this percentage increases.
  • You must start taking withdrawals the year following the year you opened your RRIF.
  • You can set up your RRIF with monthly, quarterly, semi-annually or annual withdrawals.
  • RRIF funds count as taxable income in the year you withdraw them.

What's next?

  • Consider converting your RRSP to a RRIF if you are close to retiring.
  • Ask an advisor about how you can manage your retirement plan.
  • If you’re a member of a Canada Life workplace plan, our health and wealth consultants or retirement consultants can help.

This material is for information purposes only and shouldn’t be construed as providing legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation and interpretations for Canadian residents, which are subject to change. For individual circumstances, consult with your tax, legal or accounting professionals. This information is provided by The Canada Life Assurance Company and is current as of date of publication.  

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