RRSP/RRIF

RRIF minimum income rules

RRIF minimum income rules

When you reach retirement and it comes time to take regular income out of your RRSPs, the vehicle of choice is the Registered Retirement Income Fund (RRIF). Although you can make withdrawals from a RRSP, the point of a RRSP is to accumulate funds for retirement. That’s why they call it a savings plan.
When I think of a RRIF, I visually see a bucket of money just like the RRSP is a bucket of money.  The difference between the RRSP bucket and the RRIF bucket is the RRIF bucket has a tap on it where income flows out.  You can adjust the tap to increase or decrease the flow of money out of the bucket.
 
In both the RRSP and the RRIF bucket, you can invest in the same types of investments like GICs, bonds, mutual funds, stocks, etc. As long as the money stays in the account or bucket, whether it is a RRSP or RRIF, the money continues to grow tax deferred. The RRIF differs from an RRSP in that you cannot put direct contributions into a RRIF and with a RRIF, you must take out a minimum amount each and every year. In other words, you can close the tap completely.  You must take out a minimum amount of income.  This is called the Minimum Income.

How is the minimum income determined?

Here’s the formula for the minimum income on the RRIF:

1 / (90- age)

For example, if you are 65 years of age, 90 minus 65 is 25. One over 25 is 4%. At 65, you must take out at least 4% of the RRIF balance at the beginning of the year in income. If you had $100,000 in the RRIF, you would need to take out at least $4000.

Age 2015 and later 1992 to 2015 Pre 1992
65 4.00% 4.00% 4.00%
66 4.17% 4.17% 4.17%
67 4.35% 4.35% 4.35%
68 4.55% 4.55% 4.55%
69 4.76% 4.76% 4.76%
70 5.00% 5.00% 5.00%
71 5.28% 7.38% 5.26%
72 5.40% 7.48% 5.56%
73 5.53% 7.59% 5.88%
74 5.67% 7.71% 6.25%
75 5.82% 7.85% 6.67%
76 5.98% 7.99% 7.14%
77 6.17% 8.15% 7.69%
78 6.36% 8.33% 8.33%
79 6.58% 8.53% 8.53%
80 6.82% 8.75% 8.75%
81 7.08% 8.99% 8.99%
82 7.38% 9.27% 9.27%
83 7.71% 9.58% 9.58%
84 8.08% 9.93% 9.93%
85 8.51% 10.33% 10.33%
86 8.99% 10.79% 10.79%
87 9.55% 11.33% 11.33%
88 10.21% 11.96% 11.96%
89 10.99% 12.71% 12.71%
90 11.92% 13.62% 13.62%
91 13.06% 14.73% 14.73%
92 14.49% 16.12% 16.12%
93 16.34% 17.92% 17.92%
94 18.79% 20.00% 20.00%
95+ 20.00% 20.00% 20.00%

 

You can see that at age 71, the minimum income changes and no longer follows the formula 1/(90-age) formula. At 71, the minimum income amount is predetermined by the government. You can see that as you get older, the minimum percentage increases.

The government introduced a new minimum income schedule in the 2015 Federal Budget lowering the amount of money required for withdrawals starting at the age of 71. Income used to jump dramatically to 7.38% but that was lowered to 5.28%.

Withholding tax on minimum income

When withdrawing money from a RRIF, withholding tax is NOT taken off on the minimum income amount.  Withholding tax only applies to amounts that exceed the RRIF min.  For example, Jack is 65 and want to take out $10,000 from his $100,000 RRIF.  The minimum income is $4,000 (4% X $100,000).  If he withdraws $4,000 from the RRIF, there would be no withholding tax but that does not mean the $4000 is tax free.  It just means no tax is taken off but he still has to report the $4,000 on his tax return.  If he takes out $10,000, the financial institution would withhold 20% of the difference between $10,000 and $4,000.  Thus, $6,000 X 20% = $1,200.  Jack would get $8,800 and $1,200 would get remitted to CRA for taxes.  Remember, withholding tax is just the pre-payment of tax but it does not equal the total tax owed.  Your actual tax rate is based on your Marginal Tax Rate, not your withholding tax rate.

 Related article:  Understanding Withholding Tax in retirement

Changes to RRIF Minimum income in 2020

Due to COVID, in 2020, the minimum required withdrawal for all types of registered retirement income funds (RRIFs) has been reduced by 25%. Individuals who have already withdrawn more than the reduced 2020 minimum amount will not be permitted to re-contribute the excess amount back into their RRIFs. Tax will only be withheld if you withdraw more than your unreduced minimum amount.

The 25% reduction applies to the entire minimum amount for 2020. For example, if an individual’s 2020 RRIF minimum amount before the reduction is $12,000, they could have received the minimum amount of $1,000 per month. Due to the economic measure, their 2020 minimum amount is reduced by 25% to $9,000 ($12,000 x 75% = $9,000). If the individual had already received $1,000 from January to April for a total of $4,000, they would only need to receive a total of $5,000 for the rest of the year to reach their new minimum amount. This means their monthly RRIF payments are reduced to $625 for the remaining 8 months (8 x $625 = $5,000).

For more information on RRIFs, check out one of Jim’s most popular articles: Everything You Need to Know About RRIFs

Comments

  1. Lawrence Bernstein

    Good information. Thanks. I do have one question: My wife is 20 years younger than I am.
    Am I able to use her age when I turn 71 to estimate my minimum amount of RRIF withdrawal?
    The formula would be 1/(90-61)?

  2. Bernie

    I have the same question but my spouse is 31 years younger.
    Would my formula, at 71, be 1/(90-40)?

    • Jim Yih

      Sorry for the delayed response. Yes to the both of you. You can use your spouses age for the minimum income calculation.

      • Fred Rosmanitz

        How does CRA deal with a situation wherein a person does make the annual minimum withdrawal from theiR RIF?

  3. James Lundholm

    I have a pension from Civil Service (35 years); Military – USAR 29 years) and Social Security. I My annual income is $124,000.00 from these three sources. I am currently working and earn $124,000.00 per year. I have Blue Cross, Medicare and Tricare for life (plus delta Dental). Do I need to work any more additional years for retirement? James W. Lundholm

  4. Fred Rosmanitz

    How does CRA deal with a situation wherein a person does make the annual minimum withdrawal from my RIF?

  5. Maureen

    So if I understand this correctly, if the minimum withdrawal at 65 from a RRIF is 4%, I could transfer $50,000 from my RRSP to a RRIF (both self directed) and take out $2000 (4%) that first year and then claim $2000 deduction for it on my year end taxes.

    I can continue to do that until 71 when I have to bring everything else over from RRSP to RRIF and then the withdrawal amounts will increase because of the increased funds.

    • Tom

      I hope Jim answers this because I am considering doing the exact same thing.

      • Serge Bergeron

        You are thinking of withdrawing $2000 RIF and offsetting that with the $2000 Pension Credit? if so that is correct – and if you have a younger spouse – you could withdraw $4000 and do the Pension income split and you both are entitled to the $2000 pension credit.

        • Maureen

          Thanks Serge. Didn’t realize you could take out twice as much and do the split with your spouse. I have an older spouse by two years so he’ll be at 65 before me so he could do this for the first two years at least. Have to find all the nuggets so we pay the taxman less. 🙂

  6. Marcia Edwards

    Hello JIM. Thank you for your knowledge and helping seniors. I have a question. I am 72 as of yesterday. I starting receiving my RRIF payments in January 2020. Because I am 72 the percentage point jumps to 5.28%. When does the increase become effective? On your birthday or at the end of the year? Thank you.

    Marcia

    Thank you

    • Jen

      The RRIF factor (the percentage you must pay out), is based on your age on January 1st each year. So your RRIF payments for 2020 would have been based on the factor for a 71 year old (your age at the beginning of 2020) which is 5.28%. In 2021, it will increase to 5.4% of the value of your RRIF account on January 1, 2021. This doesn’t include the allowance for 2020 to reduce your RRIF payments by 25% for COVID-19 relief.

  7. Terry Kennedy

    Haven’t the RRIF minimum income rules been adjusted for this year because of special circumstances re:COVID-19 ??

    • Jim Yih

      Hi Terry,
      I have added content to reflect the changes to the minimum income in 2020 due to COVID
      Jim

  8. Nick

    HI JIM
    I turned 71 in Sep 2020. I have RRSP account in 2 banks.
    When should I change RRSP account to RRIF and start
    Withdrawing from RRIF.
    Please advice. Thanks .

    • Jim Yih

      Anytime between now and the end of the year. I would try to not wait later than Dec 1 because you are getting into the holiday season.
      Jim

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