Convert Your RRSP to an RRIF: Deadline, Process, and Minimum Withdrawals

Many Canadians use the Registered Retirement Savings Plan (RRSP) to build wealth, but eventually, you need to focus on making money from those savings. The most common way to do this is to convert your RRSP to an RRIF to ensure a steady stream of funds. 

While you can save money in an RRSP without paying taxes, an RRIF provides regular income that you will need to pay taxes on. It is important to handle this transition carefully to keep the tax benefits of your savings.

In this guide, we will explore the essentials of this transition, including strict deadlines by age 71, the application process, and mandatory withdrawal formulas.

When Should You Convert Your RRSP to an RRIF?

You must convert your RRSP into an RRIF or other retirement income source by the end of the year you turn 71.

However, conversion does not have to wait until that deadline. Some retirees choose to convert earlier to begin receiving retirement income or to take advantage of certain tax strategies.

The two most common scenarios are reaching the mandatory age-71 conversion deadline or choosing to convert earlier based on your retirement needs.

Age 71 RRSP/RRIF Deadline

To avoid having your entire RRSP taxed as income in one year, your RRSP must be converted into an RRIF or annuity by December 31st of the year you turn 71. If you fail to convert, the full RRSP balance will be taxed as income.

Converting to a RRIF keeps your savings invested tax-deferred and allows you to withdraw only what you need each year. Withdrawing the full lump-sum RRSP amount results in significant immediate taxation.

Before Age 71

You can convert your RRSP to an RRIF before age 71 if you need access to retirement income early. Reasons to convert early include:

• You’ve already retired and need funds
• You want flexibility beyond RRSP withdrawal rules
• You want to take advantage of pension income splitting or claim the pension income tax credit

Just keep in mind that you’ll be required to take minimum RRIF withdrawals the year after opening your account.

Step-by-Step RRSP to RRIF Conversion Process

Turning your RRSP into an RRIF is usually a simple process done through your financial institution. Most of the time, the transfer happens directly between accounts without causing immediate taxes.

The process generally involves selecting a provider, opening a RRIF account, designating a beneficiary, and setting up your withdrawal plan.

Follow the five steps below to convert your RRSP into an RRIF and begin receiving retirement income.

Step 1: Select a RRIF Provider

Decide where you want to open your RRIF account. Using your current RRSP provider often simplifies the transfer since your investments can usually be moved directly into the RRIF.

Banks, credit unions, brokerages and investment companies all offer RRIF products. Compare options to find the best fit.

Step 2: Complete the RRIF Application

You will need to complete the paperwork to open a new RRIF account. Your advisor can assist with this application process. Information required generally includes:

• Your personal details
• Beneficiary designations
• Withdrawal instructions
• Investment selections
• RRSP transfer details

Take your time to provide accurate, up-to-date information.

Step 3: Designate a Beneficiary

When opening an RRIF, you will typically designate a beneficiary who will receive any remaining RRIF assets upon your death.

Beneficiary options include your spouse, partner, kids, other individuals, or your estate. Consider any tax implications.

Step 4: Set Your Withdrawal Plan

Determine the payment frequency, timing, and amount for your RRIF withdrawals. You must withdraw at least the government-mandated minimum amount each year.

Consider monthly, quarterly, semi-annual or annual withdrawals. Set specific dates or automatic deposits.

Step 5: Consider Consolidating Multiple RRSPs

If you have multiple RRSP accounts, you may wish to consolidate them into a single RRIF for simplicity. This streamlines administration and reporting.

Discuss with your advisor whether consolidation makes sense for you, and consider any fees or restrictions.

Once these steps are completed, your RRSP savings will be transferred into your RRIF account, allowing you to begin structured retirement withdrawals.

How Much Do You Have to Withdraw from a RRIF Each Year?

RRIF accounts have government-mandated minimum withdrawal amounts that you must take out each year, starting in the calendar year after you open the RRIF.

This amount is based on your age and the value of your RRIF at the beginning of the year. You can always withdraw more than the minimum if required.

RRIF Minimum Withdrawal Formula

Starting in the calendar year after you establish your RRIF, you are required to withdraw a minimum amount annually. This amount is calculated each year based on a percentage determined by your age and the total value of your RRIF at the beginning of the year.

The minimum annual RRIF withdrawal is calculated as:

RRIF Minimum Withdrawal = Fair Market Value of RRIF × Withdrawal % Factor

The withdrawal factor is set by the Government of Canada.

• If you are under age 71: The factor is calculated as 1/(90-your age).
• If you are age 71 or older: The factor is a prescribed percentage that increases with age, ranging from 5.28% at age 71 to 20% at age 95.

Here is an example for a 71-year-old with a $300,000 RRIF using the 5.28% factor:

• RRIF Market Value on January 1: $300,000
• Withdrawal % Factor: 5.28%
• Minimum Withdrawal = $300,000 x 0.0528 = $15,840

Consult the table below for the full schedule of RRIF minimum withdrawal percentages by age:

Your minimum withdrawal percentage increases gradually as you age, which means the amount you must withdraw each year will typically rise over time.

Strategies to Minimize Required RRIF Withdrawals

If you wish to withdraw less than the standard RRIF minimum amount for tax or estate planning purposes, you have two main options:

• Base minimum on spouse’s age: If your spouse or common-law partner is younger than you, you can use their age as the basis for calculating your minimum RRIF withdrawals. This results in a lower required withdrawal amount.
• Convert back to RRSP before age 71: You can convert your RRIF back into an RRSP before December 31st of the year you reach 71. But you will still need to take the minimum RRIF payment for that year.

Discuss these RRIF withdrawal minimization strategies with your financial advisor to see if they align with your overall retirement plan.

Can You Convert an RRIF Back to an RRSP?

While there isn’t a direct “conversion” process to turn a RRIF back into an RRSP, there is a specific strategy you can use to move some of your RRIF funds back into an RRSP if you are under the age of 71. This involves transferring an amount that is in excess of your required minimum withdrawal.

Here is how it works and the key points to remember:

• You must withdraw more than the annual minimum from your RRIF. The portion of the withdrawal that is above the minimum is considered an “excess amount.”
• This excess amount can then be transferred directly to an RRSP. This must be done before the end of the year in which you turn 71.
• You are still required to take the minimum RRIF payment for that year. This minimum amount cannot be transferred and is fully taxable income.
• The transfer of the excess amount is what allows you to defer the tax on that portion of the withdrawal. Any withdrawn funds that are not part of this direct transfer will be taxed as income.

Due to the specific rules around this type of transfer, most experts suggest leaving your savings in an RRIF once it has been opened. However, analyzing your specific needs with a financial advisor is the best way to decide if this strategy is right for you.

Tips for a Smooth RRSP to RRIF Conversion

A smooth RRSP to RRIF conversion requires planning around timing, taxes, and withdrawal strategies. Consider the following tips to help make the transition easier:

• Start the RRIF conversion process 12+ months before your 71st birthday – Don’t wait until the December 31st RRSP conversion deadline. Give yourself plenty of time in case any issues arise.
• Shop around and compare RRIF providers – Compare product features, investment options, fees, and services across various providers to find the RRIF account best suited to your needs.
• Consider consolidating multiple RRSPs into one RRIF – This streamlines administration and the required minimum withdrawal calculations. However, consider any transfer restrictions or fees.
• Designate your spouse or common-law partner as successor annuitant (if eligible) – This allows your spouse or partner to take over the RRIF directly upon your death without triggering immediate taxation. Ensure the designation is properly documented with your financial institution and aligns with your estate plan.
• Set up automatic RRIF payments – Arrange for direct deposit of RRIF withdrawals into your bank account for convenience.
• Only withdraw what you need – Carefully consider taxes when taking more than the minimum to avoid unintentionally pushing yourself into a higher tax bracket.
• Ensure your RRIF holdings align with your risk tolerance – Revisit your RRIF investment selections whenever your risk profile changes.
• Review your RRIF details annually – Reassess your withdrawal rate, investments, beneficiary designations, and overall strategy over time as your needs and situation evolve.

Key Takeaways on RRSP to RRIF Conversion

Here are some key points to remember when converting an RRSP to a RRIF:

• RRIFs allow you to generate retirement income from your RRSP savings.
• Your RRSP must be converted by December 31st of the year you turn 71.
• Converting early can provide access to funds pre-age 71. Just remember the required minimum withdrawals.
• Follow the step-by-step process to seamlessly convert your RRSP into an RRIF.
• RRIF withdrawal minimums are based on your age and account balance on January 1st.
• Consider consolidating multiple RRSPs into one RRIF account.
• Work with a financial advisor to optimize your RRIF income, taxes, investments and estate planning.

Converting your RRSP into an RRIF is straightforward and, with proper planning, can provide tax-efficient retirement income for years to come.

FAQs on how to convert an RRSP to a RRIF