RRIF stands for “Registered Retirement Income Fund” and can be thought of as your own self-funded pension plan. The RRSP is where you built up that pension plan, and the RRIF is where you get to take a salary from it.

I opened a RRIF last year as part of my retirement preparations (more on that in a future post) and came into this process with a whole lot of preconceived notions about how this would work and what the final result would look like. Turns out I had a lot of incorrect beliefs that I’ll break down for you:

RRIF Myth #1: You can only do this when you turn 71¹

A lot of what you read about RRIFs may make you believe that they’re only available as an option once you turn 71. Nope. That’s the absolute LAST opportunity to convert your RRSP into a RRIF. Anyone can open a RRIF, and in the year after opening it must start getting (at least) RRIF minimum payments.

RRIF Myth #2: You can only withdraw so much money a year from a RRIF

Nope — you can take as much from your RRIF as you want in a given year. However, the rules state you MUST take a MINIMUM amount from your RRIF every year (an amount I’ll refer to as “RRIF Minimum”) starting the year after you open it. RRIF Minimum for a given year is based on your (or if you prefer) your spouse’s age and the value of your RRIF on January 1.

The formula for calculating the minimum amount you can withdraw from a RRIF for a given year prior to age 71 is (1/(90-age))*(RRIF value on Jan 1).

https://www.taxtips.ca/rrsp/rrif-minimum-withdrawal-factors.htm

You can take more at any time, but then two things are likely to happen:

• You won’t get all the money you asked for because your provider is obliged to withhold tax once you exceed RRIF minimum
• You may get hit with an additional fee from your provider (e.g. QTrade charges $50 for every “additional” payment per https://www.qtrade.ca/en/investor/pricing/fees.html)

RRIF Myth #3: You ‘convert’ your RRSP to a RRIF

“Convert” is a completely inaccurate way to describe the mechanics of opening a RRIF. It’s more like “open a new account and move your RRSP assets into it”. And what’s more, each kind of RRSP you have gets its own RRIF. In my case:

• My personal CAD RRSP has a personal RRIF
• My personal USD RRSP has a personal USD RRIF
• My Spousal RRSP (the one in my name but has my spouse as a contributor) has a Spousal RRIF

You may think (as I did) that the opening of a RRIF collapses all this nonsense into one tidy account. Not so. For every RRSP you have, you can expect a corresponding RRIF. And, each of them will have RRIF minimum amounts calculated at the beginning of the year.

The other unexpected side effect is that even after opening RRIF accounts, I still have all the RRSP accounts². Yes, it’s possible to have a RRIF and an RRSP³ at the same time.

Anyway, once the work was complete, all the assets I was used to seeing in my RRSP were now showing up in my shiny new RRIF account (new number, new entry on the monthly statements…sigh) and all my RRSP accounts showed zero assets⁴.

RRIF Myth #4: You can only withdraw RRIF minimum payments once a year

This is one I learned from my parents, who dutifully withdrew their RRIF minimum payments as late in the calendar year as possible to max out every last bit of tax-free growth. As it turns out, my provider (and I presume all providers) allow monthly, quarterly or annual RRIF payments. There is no change to HOW the payment is calculated regardless of how you choose to get paid. The total amount is still only calculated once, at the beginning of the year. For example, if in a given year your RRIF minimum payment works out to $1200, then you can choose to get paid $1200 once, $300 a quarter, or $100 a month.

I’ve set up my RRIF payments such that I’m getting them monthly. Why?

• All my expenses tend to show up on a monthly basis, and that’s how I’ve always been paid. Monthly payments make cash flow less of a concern.
• Having a big lump sum of cash would require me to DO something useful with it, like earning interest until I needed it. Given my day-to-day bank account does not pay any interest, it would require extra effort to figure that out.
• A single payment implies a single relatively large stock transaction, and then you may have a timing issue if you happen to pick a bad day to sell. I’ve always invested on a monthly basis, it just feels “right” to de-invest on a monthly basis too.

1. Why did I convert to a RRIF? Firstly, it’s what my advisor recommended in order to reduce my taxable income later in life, when I start collecting CPP and OAS. Secondly, the alternative, withdrawing from my RRSP directly didn’t look so great once you started to factor in withholding tax and likely deregistration fees imposed by your provider. ↩︎
2. All with no assets, of course. However, it SHOULD be possible to convert only part of your RRSP to a RRIF according to https://www.taxtips.ca/rrsp/converting-your-rrsp-to-a-rrif.htm. I’ve not tried this, YMMV. ↩︎
3. Of course, for the RRSP to be useful you have to actually earn employment income ↩︎
4. Do keep an eye on that — as a result of a dividend payment during the transition of assets, I ended up with some cash in my RRSP after all other assets had moved to the RRIF. ↩︎