Payouts from a RRIF are taxable. A spreadsheet can be downloaded that provides tables and charts that show the impact on capital of the minimum payout for different starting RRIF capital, interest rate and marginal tax rate. If you have a RRSP, a RRIF must be taken out when you reach age 71. There are mandatory payouts per year that reduce the capital each year, when you have a return of less than 9%.
A Registered Retirement Income Fund (RRIF) is required when you have funds in an RRSP (Registered Retirement Savings Plan), a RPP (Registered Pension Plan) or a SPP ( Simplified Pension Plan) and you reach 71 years of age. These pension plan funds must be converted to a RRIF or else the plan’s funds are included as income in the year.
To recover the tax refunds that you received when you or your employer provide funds into the RRSP, RPP or SPP during your working years, the Government of Canada requires a minimum payout each year. This payout is calculated at the beginning of each year and normally reduces the capital remaining in the RRIF . The amount left at any age depends on the interest rate.
This payout is fully taxed as income. The minimum RRIF payout applies for your entire life and is calculated each year on the value of your RRIF on December 31 of the previous year.
You can elect to receive the payout any time during the year, such as monthly, quarterly or semi-annually. If you do not need the funds during the year, most financial institutions recommend December 15 as an appropriate payout date to ensure that year-end activities do not delay the payment.
Minimum Mandatory Payouts Percentages
You can create a RRIF earlier than 71. In this case, the minimum payout factor is based on your age as follows: 1 / (90 – age when you take out the RRIF). For example, if you want to start a RRIF at age 65, the payout would be 1/(90-65) = 1/25 = .04 or 4%.
Once you reach 71, the minimum mandatory payout is given as a percent and it changes each year. Canada Revenue Agency Bulletin 78-18R6 is the source for the payout percentages. These percentages are given below and graphically on the chart:
|Age||Payout %||Age||Payout %||Age||Payout %|
You can download an Excel spreadsheet where you can enter your RRIF value at age 71, the interest rate and the marginal tax rate. Please click on Download Spreadsheet now and open it if you want to use it and make the changes indicated below. (These rates by province, including the federal component, are available in the Canadian Marginal Tax Rates post.) The spreadsheet provides charts of the remaining capital each year and the minimum payout in dollars. Enter some of your values and see what happens.
For a $100,000 RRIF at age 71, a 5% return and a marginal tax rate of 20%, the payout goes from $7,380 to $4,973 at age 94. There is still about 20% of the capital left at age 94. Here are the charts that are in the spreadsheet.
Observation – Constant Payout
There are some interesting observations that can be made. Specifically, with a 6.5% interest rate, the payout is within a few dollars of being constant up to age 94 and capital goes down to only 30% of the starting value. This is true no matter the value of the marginal tax. The payout percentage is the value for age 71 which is 7.38% of the initial capital. The Available amount is this amount less the taxes. That is, for the example of $100,000, and 6.5% interest, the payout is $7,380 slowly falling to $7,064 by age 93.