RRIF Minimum Withdrawals: The Schedule That Starts Whether You Need the Money or Not

Retirement planning is usually discussed as though the risk were running out of money. For a significant number of Canadians the arithmetic runs the other way, and the problem in their seventies is not a shortage of income but a requirement to take income they do not want. A registered retirement income fund carries a legislated minimum withdrawal, calculated each year, that starts whether or not the money is needed and rises every year afterwards. That income is taxable in the year it is received, it can push a household into a higher bracket, and it feeds directly into the calculation that recovers Old Age Security. None of that is a reason to avoid these accounts, which are among the best savings vehicles available. It is a reason to understand the schedule before it starts, because almost every useful response is available in the years before the first mandatory withdrawal and almost none of them are available afterwards.

The conversion, and the three options at 71

31 December of the year you turn 71 is the last day you can contribute to your own registered retirement savings plan, and the plan has to be dealt with by that date. There are three options and only three: transfer it to a registered retirement income fund, use it to purchase an annuity, or take it into income.

The third of those is almost never the right answer, because the entire amount becomes income in a single year, which for most people means a large part of a lifetime of saving taxed at the highest rates that person will ever face. It is mentioned here only so that nobody mistakes it for a neutral option.

Converting to a registered retirement income fund is the usual route, and it is not a sale or a change of investments. The holdings can transfer as they are. What changes is the character of the account: contributions stop and withdrawals begin, on a schedule set out in the regulations rather than by the holder.

The annuity option deserves more attention than it usually gets, because it converts the balance into guaranteed income for life and removes both the investment decisions and the longevity risk. It is not better or worse than a fund; it answers a different concern, and the two can be combined.

How the minimum is calculated

There is no minimum withdrawal in the year the fund is established. The schedule begins in the following calendar year, which is a useful year of flexibility that people frequently do not know they have.

From then on, the carrier calculates the minimum by multiplying the fair market value of the property held in the fund at the start of the year by a prescribed factor determined by the annuitant’s age at the start of that year. The factor is either an amount set in the regulations or, below the ages the regulations specify, one divided by ninety minus the age in whole years.

Two consequences follow from that formula and both matter. The minimum is based on the value at the start of the year, so a strong year in the markets raises next year’s required withdrawal, and a poor one lowers it, in both cases a year after the fact. And because the factor increases with age, the required percentage climbs every year, which is why taxable income in a person’s eighties often rises without anyone having chosen it.

The full factor table is published by the Canada Revenue Agency and is not reproduced here, because a table copied onto a page like this one is a table that stops being updated. Your carrier calculates the amount and tells you, and the table is a search away when you want to look ahead.

The election that is available once

When the fund is set up, the annuitant may elect to use the age of a spouse or common law partner rather than their own to determine the prescribed factor. Where that person is younger, the factor is lower and so is every minimum withdrawal for the life of the fund.

Two things make this worth knowing well in advance. It is elected at the time the fund is established, which means the opportunity arrives once, in a year when a person is busy with several other decisions. And it does not restrict withdrawals: it lowers the required minimum, and larger amounts can still be taken in any year when they are wanted or needed.

It is not automatically right. A household that will need more than the minimum anyway gains little, and there are estate and income splitting considerations that belong in the same conversation. But it is a genuine choice that a great many people are never told they have, and the cost of missing it accrues quietly for decades.

Withholding, and the gap it creates

The minimum amount is paid without tax withheld at source. Amounts taken above the minimum are subject to withholding at rates that rise with the size of the withdrawal.

That produces a predictable and avoidable surprise. A household taking only the minimum receives it in full, includes it in income, and can find a balance owing at filing time that nothing was set aside for. The remedy is ordinary: either request that tax be withheld voluntarily, or set the money aside, or make instalments where the Canada Revenue Agency requires them.

It is worth planning for in the first year rather than discovering it in the second, because a first year balance owing can also trigger a requirement to pay by instalments thereafter.

The planning that happens before the schedule starts

Almost everything useful here is available in the years before mandatory withdrawals begin, which is precisely why it should be discussed in the sixties rather than at seventy one.

Drawing from registered accounts earlier is the main lever. Taking income in the years between retiring and the start of the mandatory schedule, at a time when other income is low, reduces the balance that later minimums are calculated on and uses tax brackets that would otherwise go unused. It is counterintuitive, because it means paying tax sooner, and for many households it results in less tax overall.

Converting a portion earlier is a related step. A fund can be established before 71, which starts a smaller schedule sooner and can qualify the income for pension income splitting and the pension income amount from age 65, both of which are questions for a qualified tax professional in a specific case.

Coordinating with public pensions is the third. Deferring Old Age Security or the public retirement pension while drawing registered income first changes which income lands in which year, and that shape is what determines the recovery tax later. The interaction between these decisions is the entire reason they should be modelled together rather than settled one at a time.

And what to do with income you do not need is the fourth. A mandatory withdrawal has to leave the fund; it does not have to be spent. It can be contributed to a tax free savings account where room exists, which shelters it from further tax and keeps it out of income when it is withdrawn later.

What happens to the fund at death

This is where the largest single tax bill in many estates comes from, and it belongs in the same conversation as the withdrawals.

In general terms, the value of a registered retirement income fund is brought into income in the year of death, subject to the rollovers available to a spouse or common law partner and, in defined circumstances, to a financially dependent child. Where a rollover applies the tax is deferred. Where none applies, a substantial amount can become taxable income in a single year, at the rates that apply to that amount.

The details are genuinely technical and depend on the beneficiary designation, the province and the terms of the estate, so they belong with a qualified tax professional and, where a will or a mandate is involved, with a lawyer or notary. The planning point that belongs here is simply that the liability exists, it is often the largest one an estate faces, and it is knowable in advance rather than at the end.

The withdrawal does not have to be made in cash

The requirement is that an amount leaves the fund, not that an investment is sold. The minimum can generally be satisfied in kind, by transferring securities out of the registered fund into a non registered account or, where room exists, into a tax free savings account.

That matters in a year when selling is unattractive. A holding that has fallen can move out at its value on the day of the transfer instead of being sold into a weak market, and the household still owns it afterwards. The amount leaving the fund is taxable in exactly the same way. Nothing about the tax changes, only the mechanics.

Two details travel with it. The property transferred acquires a new cost for tax purposes at the value used on the day, so growth after that day is treated in the ordinary way outside the shelter, which is a question for a qualified tax professional. And a fund still needs cash for any withholding on amounts taken above the minimum, which a transfer in kind does not produce.

Ask the carrier what it supports and what it charges, and ask before the autumn, because the instruction usually carries an internal deadline well ahead of 31 December.

When in the year to take it

The carrier pays the minimum on whatever schedule was set up, and the default chosen in a busy week at account opening is often kept for the life of the fund without anyone looking at it again.

Money that stays in the fund stays sheltered, so taking the amount late in the year leaves it inside for longer. Money taken monthly matches how a household actually spends and removes any risk of the requirement being missed. Neither is right in general, and both are better than an arrangement nobody chose.

Two timing points are not matters of preference. The minimum for the year is still required where the holder dies during the year, so the estate inherits the obligation. And a fund established late in a year has no minimum at all for that year, which is the reason the establishment date is worth deciding rather than accepting.

Frequently Asked Questions

Continue Learning

Read RRSP Contribution Room for the account this one comes from, The Old Age Security Recovery Tax for what these withdrawals feed into, and When to Start Your CPP or QPP Pension for the decision that should be modelled alongside it. The Wealth Creation guide sets out the whole picture.