Converting An RRSP To A RRIF: What You Need To Know
You’ve spent years saving for your retirement. Now it’s time to enjoy the benefits of these savings. One option is to convert your savings from an RRSP to a RRIF.
What is a RRIF?
A RRIF is an extension of an RRSP. While your RRSP was used to save for your retirement, a RRIF is used to systematically draw income during your retirement.
Related: RRIFs (Good God Y’all!) What Are They Good For?
Once an RRSP is converted to a RRIF you can no longer make contributions and are required to make minimum annual withdrawals as set out by federal regulations.
The funds you withdraw are taxable and this amount is added to your taxable income for that year.
RRSPs must be converted by the end of the calendar year that you turn age 71 and payments must begin the following year.
How much can I withdraw?
You can withdraw any portion as long as you meet the minimum required withdrawal amount for the year. Review all your sources of retirement income and assess how your RRIF payments will factor into your income needs.
You can take a lump sum payment at the end of each year to increase your tax-deferred growth. Or, for ongoing income needs, take monthly or quarterly payments.
There is nothing to stop you from taking more than the minimum. However, if you do, any excess will be subject to withholding tax at the source. This withholding tax is taken into account when calculating your taxes payable when you file your annual return.
How is the minimum amount calculated?
The amount is determined by your age and the value of your portfolio on January 1 of each year, as established by the Canadian government. You can open a RRIF at any age.
- Before age 71 – RRIF market value x 1 / (90 – your age on January 1)
- After age 71 – RRIF market value x required percentage (see schedule):
| Age Minimum Amount |
| 71 – 7.38%* |
| 72 – 7.48%* |
| 73 – 7.59%* |
| 74 – 7.71%* |
| 75 – 7.85%* |
| 76 – 7.99%* |
| 77 – 8.15%* |
| 78 – 8.33% |
| 79 – 8.53% |
| 80 – 8.75% |
| 81 – 8.99% |
| 82 – 9.27% |
| 83 – 9.58% |
| 84 – 9.93% |
| 85 – 10.33% |
| 86 – 10.79% |
| 87 – 11.33% |
| 88 – 11.96% |
| 89 – 12.71% |
| 90 – 13.62% |
| 91 – 14.73% |
| 92 – 16.12% |
| 93 – 17.92% |
| 94+ – 20.00% |
*Minimum payments from RRIFs established prior to January 1st, 1993 are determined using different percentages.
The mandatory minimum withdrawal does not incur any withholding tax at the time it is withdrawn, which allows you to benefit from the entire amount until tax time.
Related: 5 common myths about RRSPs
To reduce the withdrawal amount you have to take, you can use your younger spouse’s age as the base for the minimum amount calculation.
Why would I withdraw my money before age 72?
There are some circumstances where early withdrawals can be beneficial:
- A person who is unemployed or retires early may have a period of time of needing income before government or company pensions begin.
- Someone may elect to take CPP and OAS payments at a later age.
- A person who wants to reduce their RRIF balance to minimize required payments for tax purposes.
Financial institutions often charge a fee (about $25) to de-register RRSP money, which can be costly if you make regular withdrawals. RRIFs should never have withdrawal fees.
You can transfer investments “in kind” to a non-registered account or TFSA.
What investments can I hold in a RRIF?
RRIFs allow you to control how your money is invested. They offer the same investment options and tax-deferred growth as your RRSP. The investments can be transferred directly. They don’t need to be liquidated.
Allow for the flexibility of short-term funds to withdraw annually (e.g. cash, GIC’s or short term bonds) and leave growth investments intact.
Related: Breaking up isn’t hard to do – A guide to transferring your RRSP
Equities should be sold by choice (e.g. taking profits) rather than by necessity because you need to replenish your cash flow.
Plan to review your withdrawal amount and asset mix at least once a year.
Tax planning strategies
Opening a RRIF at 65 or older offers the option of income splitting (up to half of the withdrawal) with your spouse, which can help reduce OAS clawbacks.
Some people create a small RRIF at age 65 in order to make an annual $2000 withdrawal, which would qualify for the Pension Tax Credit.
What happens when I die?
Naming a beneficiary ensures that the RRIF is excluded from the calculation of estate probate fees, but the entire remaining value of the RRIF becomes taxable income to the estate unless you have a spouse, or children or grandchildren under the age of 18 (or child with a disability) who were financially dependent on you.
A spouse can transfer the funds to their own RRSP or RRIF. Financially dependent children can purchase a term annuity (to age 18) or transfer to their own RRSP.
Related: Whatever you do, don’t retire alone (and other helpful advice)
Consider naming your spouse “successor annuitant” of your RRIF. This designation allows RRIF payments to continue to go to the surviving spouse without interruption and minimizes estate administration costs and taxes.
Can yo explain more the following phrase:
“You can transfer investments “in kind” to a non-registered account or TFSA.”
It means you don’t have to take money out and spend it — if you have a mutual fund, stock, or ETF in your RRIF and want to stay invested, you can pull out units of the investment without selling them, and transfer them to your non-registered or contribute them to your TFSA.
Thanks, but that doesn’t make sense to me, I can have lots of contribution room on my TFSA and transfer some units of my investments and then cash out them later on tax free?? Am I right on this assertion?
Every year I move stocks in kind from my unsheltered account to my TFSA. All the same rules and taxation applies as if I sold the stock then bought it inside the TFSA. It merely saves brokerage fees.
An in kind transfer means a transfer that doesn’t involve buying or selling
@alexander: Keep in mind that even if you transfer your investments “in kind” or “as is” the RRSP withdrawal is still considered income for tax purposes so make sure you either have enough cash for the withholding tax.
What happens if the surving spouse leaves the entire RRSP/RRIF to their adult child(ren) after their death?
The proceeds are taxable in the beneficiary’s hands in the year they’re received (ie. year of death) unless they are transferred into their own tax-deferred plan
My understanding is that, while I have to convert my RRSP to a RRIF (or annuity) by the end of the year in which I turn 71, I don’t have to withdraw money till the end of the following year. If this is correct, what is the 7.38% at age 71 in the table? Is this the minimum withdrawal, if I choose to make a withdrawal at age 71? If I choose to make my first withdrawal as late as possible (at the end of the year in which I turn 72) is the % that applies 7.48%, then the increasing %’s in the table for each subsequent years?
@xoxox: You are correct in that you are not required to make a RRIF withdrawal until the end of the year you turn 72.
The percentage is based on your age on January 1, so most people (unless Jan 1 is your birthday) would still be 71 and would have to withdraw a minimum of 7.38%.
If I make an ‘in kind’ transfer to my TFSA can I wait say 1 year or so and sell tax free or is this not possible, if not what would be the advantage of transferring into a TFSA ?
TFSA’s mean that from the moment you transfer it in, all gains are tax free. That is a nice advantage
@johnm: If you don’t need the cash from the withdrawal it’s an advantage to transfer investments “in kind” to your TFSA for continued growth until you want to sell.
You are still liable for paying tax on the equivalent dollar amount though. Any withdrawal from a RRSP or RRIF is still considered income no matter how the withdrawal is made and subject to tax. You won’t get a free ride this way.
You can then, however, let your investment grow tax free in a TFSA.
Also we are liable for a transfer from non-sheltered investments that have capital gains.
“Some people create a small RRIF at age 65 in order to make an annual $2000 withdrawal, which would qualify for the Pension Tax Credit.” – I think that this is almost essential for people without pensions, although I think a small annuity may accomplish it also. Otherwise you are walking away from some of your money.
So, If after I have passed and then my surviving beneficiary (wife) passes, my sons become the beneficiary of her RRIF. The proceeds are then taxable.
How do we set it up to transfer the RRIF into my sons’ RRSP to avoid paying income tax until they withdraw money from the RRSP’s.
Thanks,
@poohbear: The RRIF proceeds are taxable to the estate. If your sons have RRSP contribution room they can transfer the remaining funds to their own RRSPs and receive a tax deduction.
Re:Some people create a small RRIF at age 65 in order to make an annual $2000 withdrawal, which would qualify for the Pension Tax Credit.
Can someone explain this more? On the surface this sounds like a smart move. Also, I was advised that if one is at a low income level it’s smart to start withdrawing some RRSP money each year, to minimize the amount that must be transferred to a RIF. How does one determine the amount you should withdraw each year, tax-free? I am 62 now.
@Helen: There’s a good explanation of the Pension Tax Credit at
http://www.retirehappy.ca/are-you-taking-advantage-of-the-pension/
In a nutshell, you can take a income tax credit equal to the lesser of your pension income or $2000. RRIF withdrawals are eligible for this tax credit. CPP, OAS and lump sum withdrawals from an RRSP are not.
If you are currently at a low income-and you think your income will be higher later on- you can minimize your taxes now by making withdrawals (up to your next marginal tax rate is a good plan) from your RRSP. How much you can withdraw tax free depends on your personal tax situation and the province you live in.
We just retired and have about $200,000 in RRSP’s. We spoke with someone at Oaken Financial and by next week we will be turning this money into RRIF’s.
We calculated that with their 5 year 3.05% RRIF GIC’s that pay monthly, principal and interest, we can take out $1,100 a month which will last about 20 years and 2 months, when we are both almost 86.
Robert, you are right, $4,000 of the $13,200 annual RRIF will not be taxed. This is a good tax benefit for us. We use pension income splitting as well saving us almost $1,800 a year in income taxes.
We are both almost 66 years old and are getting CPP, OAS which together is $2,456 a month.
I have a medium size pension from work through my trade union of $725.67 a month.
We currently do have $185,000 in 10 year Ontario savings bonds at 4.25% due in 2020-June-21 plus $48,000 in cashable GIC’s, high interest savings accounts which is about 15 months of living expenses and income taxes.
We also have $50,000 in dividend ETF’s yielding with 3.8% yields on average and $100,000, $50,000 each life insurance policies expiring in 26 years.
We also have a modest $200,000 long term insurance policy for each of us.
We also have $67,000 in today in TFSA’s due in 2034, 2035 zero coupon bonds of BC, Manitoba, Nova Scotia, Ontario, Saskatchewan with 4.56% to 4.89% yields with $168,335 as well.
This $168,355 will replace most of our current RRIF’s worth $200,000. It is an 84% replacement rate on an taxable basis. Since it is in TFSA’s being income tax free, it is actually equivalent to a $210,000 RRSP.
All our income sources excluding our annual TFSA, zero coupon bond compound interest adds up to about $62,000 a year and after income taxes, living expenses, we still are putting away $2,000 a month.
$11,000 a year of this is used to top up our TFSA’s every year in current 3.67% to 3.72% provincial zero coupon and residuals and the other $13,000 a year of this is used to invest in dividend ETF’s ranging from 3.5% to 4% a year yields.
We are 100% debt free since 2003 with no mortgages, credit card, car loan debt etc. and live modestly on $2,500 a month of living expenses.
We have worked, saved and made investments for 38 years now to position ourselves in a decent, financial, retirement situation.
The thing I like best about this is how you have taken the time to understand and organize your finances. You have a nice bad-times buffer built in with the savings component. I am single but am nowhere near to driving my expenses below 2500 per month, although I can see that once I am better established in my retirement (I am 61) I will probably find that achievable.
Robert, being debt free, especially having no monthly mortgage payment and car payment is the key to keeping monthly expenses lower.
The second key is to plan way ahead and have conservative investments that allow keeping future expenses paid off and not going into debt.
Jack, we are in the accumulating phase of building our RRSP’s. We are both 34 and started contributed the maximum to our RRSP’s for 12 years now.
We have a total of $315,000 in RRSP’s which was $289,000 last year in 2013 as we were not really getting that far ahead with 2.25% and 2.50% GIC’s in our RRSP’s.
In case anyone is wondering how we have $289,000 in RRSP’s by the time we are 33 years old, it is because of $69,000 from 2 of ours pension transfers to our 2 LIRA’s and the remaining $220,000 is from 12 long years of our maximum RRSP contributions and compound interest which we calculated averaged about 4.5%.
We invested our $289,000 in RRSP’s in 7 different provincial strip bonds in 2013 and they ranged from 4.11% to 4.29%.
They mature in the 2042 to 2044 and will be worth $989,755.16 in our RRSP’s allowing us to make compound interest of $700,755.16 or $23,358.85 per year tax deferred sheltered from annual income taxes.
Bond yields with the same investments and maturities are much higher than in 2013 than today which are currently in the 3.59% to 3.654% range.
We will be focusing on our TFSA’s now as we will have $73,000 of unused TFSA contribution room from 2009 to 2015.
Just to clarify, the $168,335 in the maturity value of all our TFSA’s in provincial zeros, residuals and is not in addition to the $67,000 in TFSA’s.
Hi Boomer; I read the ref. info. It says;
Transfer RRSP to a RRIF. At age 65 transfer $12,000 to a RRIF and take $2000 out per year from age 65 to 71(inclusive). This essentially allows you to get $2000 out of your RRSP tax-free for 6 years. Whether you need the income or not, it is an opportunity you do not want to miss.
The question is, can anything be done BEFORE age 65? I am 62, very low income, no co. pension. I have $250K in an RSP and $78K in a LIRA. I’m in Ont. Thanks.
Hi Helen: It looks to me that you can have income of $11,141 in Ontario without paying any tax.
Calculate your income from all taxable sources for this year. Then determine the difference (if any) that you could withdraw from your RRSP.
e.g. if your income was $6000 you would withdraw $5141. Withholding tax would be held immediately on the withdrawal but refunded to you when you do your tax return. This is the only way right now that you can take out RRSP funds without being taxed.
Dear Boomer: Thank you for the prompt reply. I will look into what you recommended. I plan to move the stocks into a non-registered account, and invest in Can. dividend growth (DGI) stocks to create a retirement div. income stream. I read one can earn up to about $46k in Can. dividends tax free.
Be careful about this. If you will have a very low income in retirement, you might qualify for the Guaranteed Income Supplement. The way dividends are taxed when earned in non-registered account significantly decreases your eligibility for GIS.
Here’s a good resource for planning your retirement on a low income: http://openpolicyontario.com/wordpress/wp-content/uploads/2012/09/allinonelowincomeretirement.pdf
Yes, Sandi, you are right about getting GIS, Guaranteed Income Supplement being reduced by higher grossed up dividends.
The best way to know if it is worth it to have mostly dividend income from investments is by comparing the annual income taxes saved versus the GIS annual income.
Also, in Helen’s case above, RRSP’s and LIRA’s that have dividend paying investments would not be tax free or tax advantaged because it is in 100%, taxable registered accounts.
The Dividend tax credit only can be used for non-registered accounts. RESP’s, LRIF’s, LIF’s, RESP’s, RDSP’s etc. are all 100% taxable as well and dividends would not help her or anyone else to save income taxes.
Great article, Marie! What are your views on RRIF withdrawal rules? I think they need to be updated. While they made sense when retirees were able to get decent turns, with interest rates as low as they are today, retirees risk eating into their capital. The C.D. Howe Institute seems to agree with me. Here’s an article I wrote on the matter:
https://www.ratesupermarket.ca/blog/would-rrif-reform-help-canadas-retirement-crisis/
I agree that the mandatory RRIF withdrawal rates by the CRA and income tax act is not in line with today’s reality. They are way to high.
I understand that governments, federal and provincial need to get their income taxes over the years but by forcing high annual withdrawals of 7% to10%+ in a short 8 or so years is and is going to harm retirees and seniors.
I would say that a better, long term approach best for governments and retirees striking a decent balance is 3.0% starting rate and a 0.25% rate increase per year until a maximum 7.5% rate is reached.
In today’s low interest rate environment of maximum 3.05% 5 year GIC’s versus maximum 6.5% 5 year GIC’s just 14 years ago in the year 2000, in my opinion and based on calculations, this will make a big difference to retirees and seniors with $100,000+ RRSP’s and RRIF’s.
I also agree with raising the age for forced RRIF withdrawals by 2 years from 71 to 73 as they increased the OAS age requirement for eligibility from 65 to 67.
The only other possible option that exists today that gives a flat amount of income is converting RRSP’s to annuities more specifically term certain fixed annuities that the last time I looked about 2 days ago paid $460 per month per $100,000 amount on a 30 year term, 360 monthly payments.
A 25 year term certain fixed annuity has a $488 a month per $100,000 amount for a 25 year term, 300 monthly payments.
However, annuities unlike RRIF’s are not financially flexible and have the disadvantage of not having access to a lump sum amount if ever needed.
This is why a well thought out financial plan of retirement income and short, medium and long term savings, non-registered investments, RRSP’s, RRIF’s, TFSA’s etc. are needed to avoid this fate.
This is a very important topic that more Canadians should be aware of and plan prudently for decades ahead.
My cousin and her husband just retired in 2014 and has a problem that most Canadians would probably want.
She is now 65 years old and has a $1,200,000 RRSP and her husband has a $600,000 RRSP which he is also 65 years old.
They converted 72% of their RRSP’s into 30 year term certain fixed annuities providing $6,000 a month, $2,000 per Canadian insurance company to stay within Assuris rules.
They are also getting now $3,200 a monthly in combined maximum C.P.P and OAS pensions. Although, there maybe some OAS clawbacks even with pension income splitting but they will save thousands maybe $5,000 or more of income taxes so that is good news.
The other $504,000 in RRSP’s compounding at 2.80% to 3.0% GIC’s strip bonds worth about will be converted to a RRIF at 71 years old and most likely put in 5 year GIC’s which if rates stay at 3.00%, should provide until their early 90’s a RRIF income of about $38,000 a year or $3,166 a month.
They have no TFSA’s and all extra annuity income will be put in TFSA’s to shelter future income taxes. This is about 3,600 a month until it reaches the $73,000 maximum TFSA contributions from 2009 to 2015 unused room.
They will continue to maximize their $11,000 a year in TFSA’s and another $11,000 in TFSA’s per year for their 2 adult children as well.
The other problem most Canadians would like to have is they also have $700,000 in non-registered investments. They have all this in dividend producing ETF’s to keep income taxes low.
They have a $100,000 in non-registered GIC’s, 3, 4 and 5 year terms and $50,000 in higher interest savings, cashable GIC’s and term deposits 120 days and 180 days.
I also forgot that my cousin and his husband’s $700,000 in non-registered dividend ETF’s are generating between $2,200 to $2,300 a month in dividend income and 33% of this amount is used to pay for $300,000 in life insurance for both of them and $500,000 in long term care insurance for both of them.
Do you have any information on converting to an LIF please?
Thanks.
Ter3
My understanding of a RRIF is that you don’t have to withdraw cash specifically. All you have to do is report the required income on your tax return (and presumably switch your investment from the RRIF to an open market investment account).
Is this what you know about reporting RRIF income?
Thanks,
Malcolm
You do not need to withdraw cash. But then you have to withdraw equities or bonds in kind. In all cases, you must pay income tax on the value of such withdrawals.
Very good discussion/info
I’m 65 and have more than one RRSP account. I want to convert one of my RRSP accounts to a RRIF and leave the others as RRSPs for now. Can I do this?
Thanks for the interesting post,
Weesie
@Weesie: Absolutely.
Weesie, before I answer your question, make sure that it makes sense to convert any RRSP to a RRIF as once you do that, it can’t be reversed.
You can’t convert a RRIF back to an RRSP. This is a very important point most people don’t understand or realize until it is too late.
Before you convert a RRSP to a RRIF, know why and how much you want to convert. Most of the time is for income needed and income tax saving purposes.
For example, if you convert a $10,000 RRSP to a RRIF at 65 years old and want to deplete $2,000 a year from your RRIF to take advantage of the pension income amount, this makes sense and you can do this.
This will save about between $350 to $400 a year in income taxes depending on where you live in Canada, provincial residency.
For example, A 5 year 3.05%, RRIF GIC at Oaken Financial will give you a monthly RRIF payment of $167 a month which includes principal and interest over 60 months.
Weesie, I can’t find a 3.05%, 5 year RRIF GIC paying monthly anywhere else, most places are 2.42% to 2.60% at most.
Weesie, just make sure that they write it in the RRIF GIC contract that you want a specific dollar amount $167 or $179 etc. every month from your RRIF GIC or they will give you the minimum required CRA RRIF GIC payments which is starts at only $24 a month.
You still have $795.62 at the end of 60 months, 5 years. If you want to take as much RRIF income as possible, you can receive $179 a month for 60 months.
At the end of 5 years, 60 months, Weesie, your RRIF will be $0.00 and be fully depleted.
Weesie, if you are talking about larger amounts from converting an RRSP to a RRIF, make sure that any money you don’t need, put it in a TFSA if you have TFSA contribution room to save even more income taxes.
@Ray Sanchez: If you are under 71 years of age you can absolutely change a RRIF back to a RRSP.
Thank you so much for your time my question is in regards to my child who has an disability and depends on us for money in the future tell me is there a way that when I turn 65 I can take out the $2000pension credit Even though I have a company pension and deposit to my child government DISABILITY SAVING ACCOUNT until she is 47 and she is fourteen now I think it is DSP. or do I move money from RRIF and pay my taxes then to her DSP PLAN or can you suggest a better way to do this for her sorry if I post in wrong area
Thanks Terry
Boomer, if you are talking about new rules put in place in 2007 then you are correct.
I just Googled it but it looks difficult to do and you have to make sure the investments in your RRIF are not going to attract penalties and lost interest, fees.
I personally would not do it as it looks like a big hassle and can cost alot of money and possible problems with the financial institution, brokerage account or adviser and possibly from the CRA.
It is better to know what one is doing first and then do it correctly in the first place. In my opinion, I would rather avoid doing this.
In Weesie’s case, a 65 year old, this is true but what if someone is 70 years old in 2014 turning 71 years in 2014, isn’t he or she stuck because he has to convert his or her RRSP to a RRIF anyway.
If he or she converts it back to an RRSP from a RRIF not knowing that he or she has to convert to a RRIF in 2014, this makes no sense and can cause alot of costs, fees, penalties for nothing.
My dad, who is turning 71 next year, will be forced to convert his RRSP into RRIF. He has RRSP sitting with two banks. I have couple questions:
1) Does he have to declare to the bank every year how much to withdraw and the frequency of the RRIF payments (i.e., monthly, quarterly, yearly)?
2) I read somewhere that it is advantageous to withdraw the money in December as opposed to early in the year. Is there truth to that?
@DL: When your Dad sets up his RRIF he can set the amount and frequency at that time. After that he only needs to let them know if he decides to change it.
The advantage of making the withdrawals in December is to benefit from another full year of returns. Other than that, it would depend on when your Dad needed the money.
I have read that you can leave your RRSP/RRIF to your child who has a RDSP. If they have room in their account. They will not get the usual bond or grant. The rollover will not be a taxable event.
@Lucy Lou: Yes you can. Here is a link
http://www.taxtips.ca/disabilities/rdsp/rolloverfromrrsp.htm
great article! Especially for those approaching 60. Related article idea: I havent found a lot of info for folks that dream of extended time off work before 65.
I would like to hear how one might fund an extended break from work using RRSP/RRIF. No or minimal earned income while traveling.
Situation being, in 10 years at approx 55 years old to travel for 5 years needing approx $2000 a month while leaving enough principle within investments for future retirement. obviously TFSA would be good but i have far more funds in RRSP’s I would like to partly access. Currently only minimal non-registered funds.
current status:
very late start but agressive now.
$70k tfsa with $35k additional room avail (2017).
$300k rrsp and working to fill remaining avail room.
mort $150k on $400k home. No other debt.
clearly not there yet but started.
I have RRSPs invested in GIC , I heard about to transfer RRSP to Community Trust and in that way can be invested in Mortgage loans in a private companies at 10%-14%. Minimun required is $50.000 in RRSPs. What is your opinion ?
I am turning 66 this year (2019) and would like to know if transfering $2000 from my RRSP to a RRIF and withdrawing it will count as taxable income and affect my GIS.