Retirement Income Fund (RRIF)

What Is a Registered Retirement Income Fund (RRIF)?

A registered retirement income fund (RRIF) is a retirement fund similar to an annuity contract, which pays out income to one or more beneficiaries. Often, owners of registered retirement savings plans (RRSP) roll over the balance from those plans into an RRIF in order to fund a retirement income stream.

Earnings in RRIFs are not taxed, but RRIF payouts are considered a part of the beneficiary's normal income and are taxed as such by the Canada Revenue Agency (CRA) in the year of the payout. The organization or company that holds the RRIF is called the "carrier" of the plan. Carriers can be insurance companies, banks, or any kind of licensed financial intermediary. The Canadian government is not the carrier for RRIFs, but it registers them for tax purposes.

Understanding Registered Retirement Income Funds

Registered retirement income fund plans are designed to provide retirees with a constant flow of income from the savings in their RRSPs. RRSPs must be rolled over by the time the contributor reaches age 69, but by converting an RRSP into an RRIF, people can keep their investments under a form of tax shelter, while still having the chance to allocate assets according to their specifications.

The Canadian government describes RRIFs as an arrangement between the insured individual and a carrier — an insurance company, trust company, or a bank — that it registers. You transfer assets to the carrier from an RRSP, another RRIF, or any other Canadian retirement vehicle, and the carrier makes payments to you. You can have more than one RRIF, and you can have self-directed RRIFs. The rules that apply to self-directed RRIFs are generally the same as those for RRSPs.

Life Income Fund (LIF)

A life income fund (LIF) is a type of RRIF offered in Canada that can be used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income. Life income funds are offered by Canadian financial institutions. They provide individuals with an investment vehicle for managing the payouts from locked-in retirement accounts (LIRA) and other assets. In many cases, pension assets may be held but are not accessible if an employee leaves a firm. These assets, usually called locked-in assets, can be managed in other investment vehicles but may require conversion to a life income fund when the owner is ready to begin taking withdrawals.

How RRIFs Operate

According to the government revenue agency, "You set up a registered retirement income fund (RRIF) account through a financial institution such as a bank, credit union, trust or insurance company. Your financial institution will advise you on the types of RRIFs and the investments they can contain. You can have more than one RRIF and you can have self-directed RRIFs." 

"Starting in the year after the year you establish a RRIF, you have to 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. You must select this option when filling out the original RRIF application form. Once you make this election, you cannot change it."

"Amounts received from a RRIF upon the death of an annuitant can be transferred directly or indirectly to your RRSP, to your RRIF, to your PRPP, to your SPP or to buy yourself an eligible annuity if you were a qualified beneficiary of the deceased annuitant."

"The existing anti-avoidance rules applicable to registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) have been enhanced to prevent any aggressive tax planning. The rules largely adopt the existing tax-free savings account rules for non-qualified investments, prohibited investments, and advantages, with some modifications."