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When to move an RRSP to a RRIF

Updated: Feb 23

At age 60 you can transfer an RRSP to A RRIF - why do this?


Background

A RRIF is another form of a Registered Retirement Savings Plan (RRSP) with the same investment choices offer the same investment options and available from all financial institutions etc. Both allow you to defer paying tax on income and gains made in the account until the money is withdrawn. The income and gains in either account have no special tax treatment other than the deferring tax until a withdrawal is made. When a withdrawal is it is taxed as income at your marginal tax rate.

At age 60 you can convert all or part of an RRSP to a RRIF (no tax payable on the switch).You may be able to make contributions to a RRSP but you cannot make contributions to a RRIF. At age 71 you must convert an RRSP to a RRIF. If the minimum withdrawal has been made for a RRIF in a year you can also convert the RRIF back to an RRSP.


When the RRIF is in place you are required to make an annual minimum withdrawal; annual withdrawals are not required from a RRSP. The minimum withdrawal rates are based on age and can be found at

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/t4rsp-t4rif-information-returns/payments/chart-prescribed-factors.html


The amount withdrawn determines the rate of withholding tax that applies withdraw. There is no withholding tax applied to your minimum payment from the RRIF.


The account holder (platform provider) determines the minimum annual withdrawal based on age at January 1 each year. However, an election can be made to have the withdrawal based on a spouse’s age. The account holder will also automatically withhold tax if a withdrawal or cumulative withdrawals for the years exceed the minimum amount. (There is no limit on the maximum you can withdraw). Tax is otherwise payable when the return for the year is filed.


Advantages - converting to a RRIF

1) At age 65 RRIF withdrawals are treated as pension income and qualify for the $2000 pension income deduction.

2) The pension deduction becomes a non-refundable tax credit - $300 each year (15% of $2000).

3) You can split up to 50% of pension income (RRIF) with a spouse.

4) Investments can be consolidated and managed in one account.


Word of caution

If you receive pension income, excluding CPP and OAS, of more than $2,000 there is no advantage to converting to minimize tax unless you split the RRIF income with your spouse and you and/or your spouse have a pension of less than $2,000.


G.Wahl, Managing Director, The PensionAdvisor [gw1]

[gw1]

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