Converting an RRSP to RRIF (Registered Retirement Income Fund)

You know that saving for retirement is an important part of securing your financial future. Hopefully, you’ve been using tax advantaged accounts to help you build your retirement savings over time.

If you’ve been saving part of your income in your RRSP, by the time you retire you’ll likely have a comfortable nest egg. While there are tips to reduce your taxes when withdrawing your income, there is something else you’ll want to plan ahead for: converting an RRSP to RRIF.

What is a Registered Retirement Income Fund?

While you might like to keep your RRSP forever, the reality is that you can’t. You must close out your RRSP by the end of the year of your 71st birthday. You have to convert that money into another form, such as a life annuity or the RRIF.

Converting an RRSP to RRIFThe Registered Retirement Income Fund, like the RRSP, in not an investment in itself but simply a tax shelter plan that you can benefit from in your retirement. Plus, unlike a life annuity, which someone else has control over in terms of investments, you direct your RRIF. This element of control is one of the reasons that the RRIF is one of the preferred methods of RRSP conversion.

However, there are some drawbacks to the RRIF. Unlike an RRSP, you cannot make new contributions to an RRIF. There is also a minimum amount that must be withdrawn from your RRIF each year. You have to withdraw some of the money each year.

This minimum withdrawal amount is calculated as a percentage of your plan’s total value at the beginning of the year. The percentage is based on age, from as low as 4.76% at 69 years old to as much as 20% at age 90. Keep in mind that though the percentage increases each year, and depending on the return of your investments, the total value of your RRIF may have decreased as you draw down from the plan. These factors may even out the actual dollar value of your yearly minimum withdrawal over time.

Realize that your RRIF withdrawal is still considered taxable income. This means that you will pay taxes on your withdrawal, even though it’s mandatory, at your marginal rate. The good news is that the mandatory minimum withdrawal does not incur any withholding tax at the time it is withdrawn. This will allow you to benefit from the entire amount until tax time, at which point you may owe less than most withholding tax brackets, depending on your tax situation. If you plan to withdraw more than the minimum, taxes will be withheld on that additional amount, though.

What if you don’t need the entire minimum amount you are required to withdraw? While you can’t avoid withdrawing it as income, you could move as much of the unneeded money as possible into your TFSA, up to your contribution limit. The TFSA may become a major part of retirement planning since there is no maximum age limit, and since the earnings grown tax-free. Consult a retirement planning expert to get an idea of how you can use your TFSA with your RRIF.

Another tax planning move you can make is to create a small RRIF account at age 65. When you do this, it’s possible to make annual withdrawals of $2,000 and qualify for the pension credit earlier. You can keep making contributions to your RRSP, if you still have it, and you can move money from your RRSP to your RRIF as it suits you as long as you have your RRSP.

With a little planning, you can reduce the tax impact over the years, and make the best of your situation.

Written by Tom Drake

Tom Drake is the owner and head writer of Canadian Finance Blog. While you’re here, consider signing up for the RSS feed or email subscription. Both deliver the latest articles directly to you! You can also follow me on Twitter for all the latest posts or to send me any comments or questions!

18 Responses to Converting an RRSP to RRIF (Registered Retirement Income Fund)

    • You can open up a RRIF at any age. If you have 2 RRSP’s you can change 1 to a RRIF and withdraw the minimum from 1 only. This keeps the minimum withdrawals lower. Also any good RRIF has no withdrawal fees while an RRSP may, so don’t pay banking withdrawal fees on an RRSP, withdraw from your RRIF.

  1. Alex, you can convert RRSP to RRIF at any age as long as it is before the end of the year in which you turn 71. You could convert in your 20’s, 30’s or 40’s but unlikely that one would do so. Many have converted RRSPs to RIFF in their 50’s.

    • Don’t forget you only live so long and minimum tax rates are about $42,707 per year in Ontario. Divide by the number of years you expect and withdraw lower than the minimum. You’d be paying 14.5%, higher than that you pay 30.5% and higher.
      It also makes you wonder why you let the banks convince you to contribute when your tax rates were minimum. You may be withdrawing at maximum tax rates after retirement if you pensions are too good.
      If you had a good job the best time to contribute was when your income was the highest.
      You wait too long to withdraw and your income will be too large to stay at lower tax rates.
      Retiree with experience

  2. Thinking of retiring at 57 with my wife being 56…We`ll have approx.$400,000 in rrsp`s…We`ll have about $100,000 each in tfsa when we turn 65…No pensions or other income…We plan on using up all our rrsp`s before 65…So any overage we cash out will go to top up the tfsa and cash for later use…Once 65,we should be receiving oas,cpp,and gis since we`ll have no other income…Those 3 together will get us approx. $3000 net per month between the two of us..We can then supplement our income with cash and tfsa`s…Best way to get max from the man and retire early …I`m not a pro so any advise will be appreciated…Thanks

  3. First question: What is the earliest age you can withdraw from a RRIF? I’ve seen websites that say 55, but then the CRA website did not say that. I am puzzling.

    Second question: Can I convert a locked-in RRSP into a RRIF and start making withdrawals?

    Ron L
    Markham, Ontario.

  4. my boy friend phoned family food bank. he thought he had just a rrsp in this credit union. they got back to him fri oct 17th 2012 an told him he could not get access to his fund.they told him it is locked in, that he has to go through the government to get this money. could you please explain this tome. there is only 8000.00 in the plan, he is also over 55. any help would useful,

    • That amount is small enough that it can be transferred to a RRIF from a locked-in account and then withdrawn. Check with your bank.
      My wife did it with just over $10,000. We found the rules on the web, printed it and took it to our bank.

  5. I like Luc’s idea and have long considered doing something similar with my RRSP in my 50s:

    -Retiring in 50s,
    -Use some RRSPs to convert to RRIF
    -Live off of RRIF
    -Keep rest of RRSP growing until I must collapse it or need the money.

    Once 67, will take OAS. May take CPP at 60 or 65, not sure.

    Use any money not needed from RRIF to fund TFSA, grow TFSA and live from dividend income it will produce.

    Good article,

  6. My husband is turning 71 this summer. He has rrsp,s in different financial institutions. Can we transfer each rrsp into an rrif at each institution and them take minimum amount out of the plan we choose. He has them coming due in different years and also some as stock.

  7. If I establish my RRIF at, say, the age of 55, will I not be subject to any minimum withholding amounts until I reach the age of 65? (The charts all seem to start at age 65). Or am I subject to them and just manually do the calculation: 1/(90 – 55) = 2.86% for the first year?

  8. I turn 71 on December 31. How is the end of the year that I turn 71 calculated. Does my year end on thecsamevsay I turn 71?

    Looking forward to your answer

  9. My brother and I just received money from my mother’s RRIF upon her death. How much money in income tax can I expect to pay?

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