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RRIFs and RRSPs are the exact same but one might offer more tax savings
Q: I’m 67 and my husband turned 71 in May. He has to turn his RRSP into a RRIF. Can I turn my RRSP into a RRIF also? The only income we have is Old Age Security and CPP and it just isn’t enough to pay bills and food. The person from our bank said that I was too young to turn the RRSP into a RRIF. Is she right? Any information would be great.
—Mina
A: Registered Retirement Income Fund (RRIF) is exactly the same as a Registered Retirement Savings Plan (RRSP) with only two exceptions. Age 71 is the latest age that an RRSP can be converted to an RRIF. A RRIF has a mandatory minimum withdrawal requirement. This minimum is a % amount based on your age. (See this table.)
I see that Mina wishes to solve a perceived income problem by converting to a RRIF. It simply isn’t necessary as Mina can withdraw funds from her RRSP as-is. Mina can decide what amount she needs for a regular income over the coming months/years and withdraw that amount. Both RRSP and RRIF accounts are equally 100% taxable upon withdrawal for income.
There is a good reason for Mina to convert to a RRIF—lower tax. If she does not have pensionable income such as a lifetime company pension or annuity then the pension credit on up to $2,000 annually of pensionable income is not being used. Income from an RRSP is not pensionable—income from a RRIF is. Convert at least $2,000 of your RRSP to an RRIF and withdraw that amount annually whether you need the income or not as this withdrawal is tax-free. CPP/QPP, OAS and GIS are not eligible pension income for the purpose of lowering tax.
| Reasons to Convert to a RRIF Early | Reasons to Delay Converting to a RRIF |
| You are age 65+ and do not have pension income | You have pension income |
| You want to convert some or all of your RRSP funds to a steady monthly annuity | You have other savings so can delay drawing from your RRSP |
| You are satisfied with drawing funds from your RRSP for spending | |
| You are self-employed and drawing dividends from your corporation |
Consult with a Certified Financial Professional to organize an effective income stream for your retirement lifestyle.
Tom Feigs is a certified financial planner and retirement expert in Calgary.
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