RIF the Investment or RRIF the Tax Account? What is the Difference?
Wednesday, November 29, 2023
RIF the Investment or RRIF the Tax Account? What is the Difference?
Wednesday, November 29, 2023
Mitch Zaba
Short acronyms in the investment world are overwhelming and confusing. Especially when the two are as similar as RIF and RRIF.
RIF, the Investment
A RIF is a Retirement Income Fund. This is an actively managed mutual fund that aims to provide retirees with reliable investment income with lower downside risk. This type of fund is usually made up of a combination of stocks and bonds that are low to medium risk in nature.
RRIF, the Account
When someone mentions RRIF, they usually mean the Registered Retirement Income Fund. This is the account from which Canadian retirees withdraw a regular income for retirement.
At age 71, you must transfer the balance of your RRSPs into a new account called a RRIF. Then, based on a pre-determined formula, you must withdraw a minimum percentage of your RRIF per year. This minimum is determined by the total amount in your RRIF and your age or your spouse's age. The financial people call this the RRIF minimum.
RRIF minimums do not have taxes withheld on withdrawal. However, the entire RRIF minimum amount has to be claimed on your taxes each year. This could result in taxes owing depending on your marginal tax rate.
See the RRIF minimum table at the bottom.
Pension Savings Have Their Own Confusing Terms
To make matters even more complicated, pension savings have their own acronyms and rules to follow.
When you're working and contributing to a pension plan, you will either be contributing to a defined contribution plan or a defined benefit plan. Both of these plans allow you to transfer eligible amounts when you retire or leave the employer.
To avoid paying taxes and depending on your pension rules, you will have to transfer the amounts into a Locked-In Retirement Account (LIRA) or a Locked-In Retirement Savings Plan (LRSP).
LIRA
A LIRA is a Locked-In Retirement Account. When you leave an employer, for retirement or other reasons, and you contributed to a pension plan, you can transfer your entitled amount to a LIRA. This LIRA can be held with any other financial institution that can administer these types of plans.
LIRA's are meant to protect Canadian's retirement by establishing minimum age withdrawals. Usually 55, sometimes 50.
LRSP
An LRSP is a Locked-In Retirement Savings Plan. An LRSP is essentially the same as a LIRA, just that an LRSP is usually governed federally whereas a LIRA is usually provincially regulated.
LRIF, LIF, and PRIF
To access your savings within an LRSP or LIRA, you must first transfer some or all of your savings into an:
- LRIF- Locked-In Retirement Income Fund
- LIF- Life Income Fund or,
- PRIF- Prescribed Retirement Income Fund
The province your pension savings are governed by will determine the type of account you must use. For example, Saskatchewan and Manitoba are the only provinces that offer PRIFs. LRIFs are offered by Alberta, Manitoba, Ontario and Newfoundland and Labrador. LIFs are offered in all provinces except Saskatchewan and PEI.
PRIFs are the most flexible since they do not have maximum withdrawal limits. LRIFs and LIFs have more limitations because they apply maximum withdrawal limits to ensure your savings last throughout your lifetime.
Conclusion
The investment industry does not make it easy to follow the many acronyms especially when they are as similar as RRIF and RIF. A RRIF is a tax-sheltered account to withdraw regular retirement payments. A RIF is a type of investment geared towards providing retirees consistent, lower-volatile, investment income. Then, when it comes to pension savings, they have different acronyms related to locked-in provisions with pensions.
RRIF Minimum Percentage Table
RRIF minimums are calculated by CRA as a factor and can be referenced here.
| Age At The Start of The Year | RRIF Minimum Percentage |
|---|---|
| 65 | 4.00% |
| 66 | 4.17% |
| 67 | 4.35% |
| 68 | 4.55% |
| 69 | 4.76% |
| 70 | 5.00% |
| 71 | 5.28% |
| 72 | 5.40% |
| 73 | 5.53% |
| 74 | 5.67% |
| 75 | 5.82% |
| 76 | 5.98% |
| 77 | 6.17% |
| 78 | 6.36% |
| 79 | 6.58% |
| 80 | 6.82% |
| 81 | 7.08% |
| 82 | 7.38% |
| 83 | 7.71% |
| 84 | 8.08% |
| 85 | 8.51% |
| 86 | 8.99% |
| 87 | 9.55% |
| 88 | 10.21% |
| 89 | 10.99% |
| 90 | 11.92% |
| 91 | 13.06% |
| 92 | 14.49% |
| 93 | 16.34% |
| 94 | 18.79% |
| 95+ | 20.00% |
Hi, I Am Mitch Zaba
Over the past 10+ years, we've worked closely with clients showing them how to grow their wealth, pay less taxes and how to create predictable passive income in the stock market.
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