What is a Registered Retirement Income Fund?

Also known simply as an RRIF, a registered retirement income fund is a type of retirement plan that is offered in the nation of Canada. Essentially, the plan functions in tandem with a registered retirement savings plan, or RRSP. The funds from the RRSP are rolled over to the registered retirement income fund and disbursements are made from that fund once the individual retires. Unlike some other types of retirement funds found around the world, the payments disbursed from the RRIF are considered taxable income, since the funds were not taxed at the time they were accumulated in the RRSP.

It is important to note that the government of Canada does not manage or sponsor a registered retirement income fund. In most cases, banks, insurance companies, or some other type of financial institution manages funds of this type. Any institution that offers this type of fund is known as a carrier. Each carrier offering an RRIF must be registered with the Canadian Revenue Agency in order to make these plans available to any interested party.

One of the benefits of a registered retirement income fund is that disbursements from the fund can be structured to ensure that the retiree has a steady cash flow throughout the retirement years. When used in tandem with other retirement benefits, such as an employer pension plan, the RRIF can go a long way toward ensuring the financial stability of the retiree. Payments are issued on a monthly basis, but may also be set up for disbursement on a quarterly or semiannual basis.

Another advantage of the registered retirement income fund is that it allows the retiree to avoid a huge tax debt when the funds contained in the RRSP must be withdrawn. Current Canadian tax laws require that the RRSP be rolled over by the time the beneficiary reaches the age of 69 or the cash must be disbursed by the time the retiree reaches the age of 71. By rolling over the funds into a registered retirement income fund, there is no lump sum taxation on the entire amount, as would be the case if the retiree chose to simply withdraw the balance of the RRSP in cash. Once in the RRIF, the funds continue to earn interest and are not taxable until the funds are withdrawn.

As with many plans of this type, the amount of funds withdrawn over the course of a single tax period will determine the amount of tax burden that the retiree incurs. Assuming the withdrawals are kept under a certain amount, the tax burden will be less. Should the withdrawals exceed a certain limit, higher tax rates may be applied, resulting in a larger tax burden.