Converting RRSP to RRIF

A Registered Retirement Savings Plan (RRSP) is a tax-deferred savings account designed to encourage saving for retirement. It can be helpful to think of a RRIF as an extension of your RRSP. While a RRSP helps you to save for retirement, a RRIF provides income during retirement through regular withdrawals of prior savings from your RRSPs. You can hold the same investment options (mutual funds, ETFs, GICs, etc.) within a RRIF, with one key difference: rather than focusing on putting money into your account, you’re regularly taking it out. RRIFs have a minimum annual withdrawal amount, more information below.

You must convert a RRSP to a retirement income option such as a RRIF by December 31 of the year that you turn 71. If instead of transferring into a RRIF, you choose to withdraw your RRSP as a lump sum, then it is treated as taxable income – which could result in a substantial tax hit.

Once you convert your RRSP to a RRIF you’re required to take minimum annual withdrawals from your RRIF in the next calendar year following the year in which you opened it, but there is no maximum withdrawal limit.

After age 71, you can only contribute to a spousal RRSP if it’s in your spouse’s name, your spouse is under 71 years old, and you have remaining RRSP contribution room.

After opening a RRIF you must take minimum annual withdrawals each year. The amount is set by the federal government based on your age and a percentage of the balance of your total investment at the beginning of the year. The percentages increase each year as you get older.

You don’t have to pay tax on the money in your RRIF as long as it stays in the RRIF. Any money you withdraw from your account is considered income for tax purposes – including the minimum withdrawal amount – but you’ll likely be taxed at a lower marginal tax rate during your retirement years than when you were saving for retirement.

Should you take out additional income above the minimum withdrawal amount, taxes will be withheld at the time of withdrawal, as financial institutions are required to collect tax right away. For example, John’s minimum withdrawal amount for the year is $21,000, but he wants to withdraw $25,000. John would only pay withholding tax on the $4,000 (about $400).