Ever wonder why the income you receive from your RRIF can change, even when the amount you withdraw each year remains the same?
While there is no minimum age for a RRIF, you must convert your Registered Retirement Savings Plan (RRSP) to a RRIF by the end of the year in which you reach age 71. Once you convert your plan, Canada Revenue Agency then mandates a minimum annual payment that you must take from your plan each year.
That minimum payment is a percentage based on your age and the value of your investments on January 1 of each year.
The minimum payment is not subject to withholding tax, but you will receive a T4RIF at the end of the year, to include this income when you file your personal tax return.
Any extra payments you take from your plan will be subject to withholding tax, based on the extra amount you withdraw. For example, if your minimum annual payment was $2,500, but you requested $3,000 from your RRIF, the extra $500 would be subject to withholding tax, based on the amount of the excess payment.
Since your minimum annual payment is recalculated each January 1, you could still be taking out the same $3,000 the following year, but because of your new age and the value of the plan at that time, your minimum payment would be different. Assuming your new minimum payment was now $2,600, only $400 would be subject to withholding tax.
Some companies calculate the withholding tax and deduct 1/12 of the tax from each monthly payment, while other companies will pay the minimum first, then deduct withholding tax later in the year, when the excess portion then starts.
