Each year, Registered Retirement Income Fund (RRIF) holders must withdraw a required minimum amount, which is then taxed as income in the year of withdrawal. These amounts are generally based on the RRIF holder’s age at the beginning of the year, and expressed as a percentage factor of the value of the RRIF assets at the beginning of the year. However, prior to receiving any payments under the fund, a RRIF holder can elect to use the age of their spouse or common-law partner for purposes of determining the prescribed percentage factor. These rules are intended to ensure that individuals are provided with a retirement income, while also gradually bringing amounts that were previously tax-deferred into income subject to tax.
Notably, the 2015 federal budget announced measures to reduce the minimum annual RRIF withdrawal amounts for ages 71 through 94, beginning with the 2015 tax year. This will allow RRIF holders to preserve more of their RRIF savings in order to provide income as they age.
Amounts withdrawn in 2015 that are over and above the new reduced minimum amounts for 2015 can be re-contributed to a RRIF until February 29, 2016. Re-contributed amounts will not be taxed as income. If you are a RRIF holder and have already made your withdrawal for 2015 based on the old rules, consider re-contributing any excess amounts withdrawn to your RRIF by the deadline date. If you have more than one RRIF account, you don’t have to re-contribute the excess amount to the same RRIF account that you originally withdrew the amount from. Excess amounts can be re-contributed to any of your RRIF accounts.
To illustrate the impact of the new rules, assume Lauren is 72 years old and has a RRIF valued at $550,000 at the beginning of 2015. Under the old rules, she would have had to withdraw $41,140, or 7.48 percent of the RRIF value, in 2015. Assume that she did so in March 2015. Under the new rules, she only needs to withdraw $29,700, or 5.4 percent of the RRIF value, in 2015. If Lauren wishes, she can re-contribute the difference of $11,440 to her RRIF, as long as she does so by February 29, 2016.