RIF vs RRIF: What's the difference?

There sure are lots of short forms in finance and they can be confusing. Here’s the scoop on RIFs, RRIFs, LRIFs.

What is a RIF

RIF stands for Retirement Income Fund. In general terms, it refers to any retirement investment account you set up so that when you retire, you’ll be able to continue to enjoy life. There are several different types of retirement income account, awnd it’s important to know which one you have, because they have different rules.

The difference between a RIF and RRIF

A RIF is a general term for the various retirement accounts. There’s also something called a RRIF, or Registered Retirement Income Fund, which is a specific type of account with lots of rules. Sometimes financial institutions say RIF when they mean RRIF so it’s important to know the difference.

What is a RRIF

A Registered Retirement Income Fund (RRIF) is a product that is intended to pay you a specific percentage a year for the duration of the funds in the account, or your death, whichever comes first. Remember all those dollars you’ve been tucking away in a Registered Retirement Savings Plan (RRSP)? Well, by the end of the year you turn age 71 (or your partner/spouse turns age 71 if you have a spousal RRSP) you have to stop contributing and start withdrawing. In order to do that, you transfer the funds to a RRIF.

You/your partner must begin withdrawing from the RRIF in the next calendar year following the conversion from RRSP to RRIF. If you convert your RRSP to a RRIF in 2019, you must begin withdrawing funds in 2020. The amount you must withdraw annually is calculated by multiplying the market value (balance in your account as of January 1 of the calendar year starting the year after you open the RRIF by a prescribed percentage that is based on either your age or your partner’s age.

If you withdraw only the minimum amount, you will not have any tax taken off at the time of the withdrawal. You have to include the full amount as income at tax time, and you will receive a T4-RIF from your financial institution to tell you what amount to include. You can learn more about RRIF withdrawals here.

Source: Canada Revenue Agency

RRIF minimum withdrawal amounts 2020

The good news is, your financial institution knows how much you have to withdraw. You can take the amount monthly, quarterly, semi-annually or in a lump sum, as long as the total withdrawal amount adds up to your minimum amount. If you have more than one RRIF account, it can make sense to transfer them all into one account so you can keep track of your required withdrawal amount.

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Other types of Retirement Income Account

There are other types of retirement income accounts, and they each have different sets of rules. Here’s a brief overview:

LRIF

An LRIF is a locked-in RRIF. Locking-in occurs when you terminate employment from a company with a pension plan, and you aren’t eligible to start receiving the pension yet, You can transfer the funds out of the pension plan, but they must remain locked in until the retirement age specified in your pension plan document. Here’s some more information about retirement age in Canada.

At one time, a Locked in Retirement Income Fund (LRIF) was offered in Alberta, Ontario, Newfoundland and Labrador and Manitoba, but now only Newfoundland and Labrador continue to offer them.

If you transferred your funds to an LRIF, not only is there a minimum withdrawal amount, there is also a maximum withdrawal amount. LRIF are intended to provide income for life, and that’s why there’s a maximum.

Ontario offered LRIFs until 2009. After 2009, no new LRIF could be sold, but existing LRIF were fine. You can get more information about Ontario LRIF here.

Alberta also offered LRIFs until 2007, and then required all LRIF to be converted to LIF accounts. (More about those below.) Here is more information about Alberta LIF.

Manitoba also offered LRIF until 2010, when all existing LRIF had to be converted to LIF accounts. Here is more information about the Manitoba LIF.

LRIF are still available in Newfoundland and Labrador. You can get more information about Newfoundland and Labrador LRIF here.

Any withdrawal amount must be included as income. You will receive a T4RIF form from your financial institution with the amount to include.

LIRA

A LIRA is a locked-in Retirement Account. If you terminate employment before you are retirement age, and you had an employer-sponsored pension plan, those funds must remain locked-in. A LIRA is a holding account for your pension funds until you reach the normal or early retirement age stated in your pension plan document. Like other registered accounts, investment returns are tax-sheltered until you withdraw the funds.

When you are eligible to withdraw funds from the LIRA, you can take the entire balance in cash, which is fully taxable as income at your marginal tax rate, or you convert it to a LIF or an annuity and begin to draw income.

LIF

A LIF is a Life income Fund. When you reach either normal or early retirement age, you can begin to access all the Locked-in Funds you have in a LIRA or LRIF and begin to draw income. Like its cousin the RRIF, LIF accounts have mandatory minimum withdrawal amounts, based on the same calculation as a RRIF. However, LIF are intended to provide income for as long as you are inhabiting the earth, so there is also a LIF maximum withdrawal. That amount varies by province, and it is determined by the same pension rules under which the funds were locked in.

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