Converting your RRSPs into RRIFs

In the year that you turn 71 years old, you will be required to convert your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF), withdraw the funds, or use them to purchase an annuity. You could choose to convert to an RRIF early if you need the income sooner.

Each of these options has different features and tax implications. For example:

  • You will be required to take out a minimum amount from your RRIF each year but there is usually no maximum on how much you withdraw. The minimum amount could increase as you get older. You will pay income tax on the money that you withdraw. Any money that is left in your RRIF when you die will be part of your estate.
  • Some annuities pay you a set amount for the rest of your life, but be aware that you can’t close the annuity or take out additional money for any reason. There are different types of annuities (such as term, life, variable) and they each have different features. If you already have a pension from your employer that gives you guaranteed permanent income, or if you are not in good health, then an annuity might not be right for you.
  • If you simply withdraw the funds from your RRSP or RRIF it is likely that the full amount will be taxed as income in the withdrawal year and may be subject to withholding tax. Be sure to set a budget and reinvest any money that you won’t need for a while.

Consult with your financial advisor or trusted financial professional to make sure you understand the options, including their tax and estate implications, before you decide on a course of action.

Once you make your decision, meet periodically with your financial advisor to review your investment portfolio to ensure that you are on track.