Every Canadian with a Registered Retirement Savings Plan (RRSP) must eventually convert it. By law, you cannot hold an RRSP past the end of the year you turn 71. At that point, you have three options: convert to a RRIF, purchase an annuity, or simply cash out (and pay full income tax). For most Canadians, converting to a RRIF is the right choice.
A Registered Retirement Income Fund (RRIF) is essentially the flip side of an RRSP. Your RRSP is for accumulating retirement savings; a RRIF is for drawing them down. Your RRSP assets transfer directly into a RRIF — the investments themselves do not need to be sold or changed. The same types of investments (stocks, bonds, GICs, mutual funds) can be held inside a RRIF.
You can convert earlier than age 71 if you wish. Some retirees begin drawing down at 65 or even 60 to manage taxes, especially before CPP and OAS kick in at their full amounts.
Converting is straightforward. Contact your bank, credit union, or investment dealer and request the conversion. They will open a RRIF account and transfer all assets in-kind. There is no tax triggered by the conversion itself — tax is only paid when you make withdrawals.
Once you have a RRIF, the government requires you to withdraw a minimum amount each year. You cannot leave money in a RRIF indefinitely. The minimum withdrawal percentage is based on your age (or your spouse's age, which you can elect).
These minimums are applied to the RRIF balance at the start of each year. You can always withdraw more than the minimum, but not less. All withdrawals are fully taxable as income in the year taken.
Federal withholding tax applies to RRIF withdrawals above the minimum:
Minimum withdrawals do not have withholding tax, but you still owe tax at your marginal rate when you file. Consider requesting voluntary tax withholding on minimum withdrawals to avoid a surprise tax bill in April.
You can elect to base your minimum RRIF withdrawals on your younger spouse's age. This reduces the required minimum, which can be useful for managing income and preserving the RRIF balance longer.
RRIF withdrawals qualify for the pension income tax credit once you turn 65. This credit reduces your federal tax by up to $300/year (on the first $2,000 of eligible pension income). You can also split RRIF income with a spouse for further tax savings after age 65.
No. Once you convert your RRSP to a RRIF, you cannot make new RRSP contributions to that account. However, if your spouse is younger than 71, you may still be able to contribute to a spousal RRSP until December 31 of the year your spouse turns 71.
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