Rules For Converting Your RRSP To A RRIF

by Mike Holman

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My parents are in the process of getting their RRSP accounts converted to RRIFs (Registered Retirement Income Fund) since they are turning 71 this year.  After answering a few of their questions I thought I would do a post covering some of the basic rules and strategies of converting a RRSP account to a RRIF account.

For the majority of readers who are nowhere near the age of 71 I suggest you read this anyways.  If you have any of your money in RRSPs then one day you probably will have a RRIF and it makes sense to understand all the rules since a RRIF account is basically the sequel to your RRSP account.  There are a lot of similarities between a RRSP account and a RRIF account.  The main difference between the two is that the RRSP account is used to accumulate money via contributions whereas the RRIF account disperses money via withdrawals.

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Rules for converting RRSP to RRIF

  • You have until Dec 31 of the year when you turn 71 to convert the account to a RRIF.
  • Some institutions will do it automatically so even if you don’t do anything – you will be the proud owner of a RRIF account on Jan 1 of the year you turn 72.
  • You can convert your RRSP to a RRIF anytime you want before the deadline.  One reason someone might convert early (ie at age 55) is so they can set up regular withdrawals from the account which most institutions won’t allow for RRSP accounts.
  • Mandatory or minimum payments – these start in the year after you set up your RRIF account.  There is a set minimum percentage amount determined by the government that you have to withdraw each year.  The percentage withdrawal amount increases as you get older.
  • There is no maximum withdrawal amount except for the amount of money you have in the account.
  • All withdrawals from a RRIF count as taxable income (including the mandatory withdrawal).
  • A RRIF account can hold the same investments as an RRSP account.  Most financial institutions that offer RRSP accounts also offer RRIF accounts so you shouldn’t have to switch institutions.
  • Money in a RRIF account is still “registered” so you don’t pay any tax on any income and there is no capital gains/losses.  Same as your RRSP.
  • You can’t make any contributions to a RRIF account.
  • You don’t have to spend all of your RRIF withdrawals.  You can save the money.
  • You don’t need to sell the actual investments in your RRIF to complete a withdrawal.  Most institutions will allow you to transfer your investments “in kind” to an non-registered account or TFSA account.
  • You can have more than one RRIF account.
  • Some people create a small RRIF account at age 65 in order to make annual $2,000 withdrawals which will qualify for the pension credit.
  • You can make multiple transfers to the same RRIF acount from your RRSP account.

What to do with your new RRIF account?

One of the main differences between a RRIF and an RRSP is that you have to make at least one withdrawal per year from your RRIF account starting in the year you turn 72.  To make that happen you have to set up some sort of payment method for your RRIF account.

Some RRIF payment options:

The government rules say that you have to withdraw the mandatory amount from your RRIF by Dec 31 of that year.  How you get your payment is up to you.  You should check with your financial institution but here are some options that you will probably have available to you:

  • Payment frequency – Do you want 1 lump sum payment at the beginning of the year?  Or 1 payment on Dec 31?  Would you like 12 monthly payments or some other option such as weekly payment?  Just ask.
  • Payment form – You can get the money as a cheque or EFTed to your bank account.  You can also get it transferred to an open or TFSA account in the same institution.
  • Withholding tax – Unlike a RRSP where there are set minimum percentages for the withholding tax depending on the withdrawal amount, there is no minimum withholding tax on the mandatory withdrawal amount, so you can elect to not have any withholding taxes taken from the withdrawals.  If you take more than the mandatory amount then there are minimums, which is the same as a RRSP withdrawal.  In either case you can (and probably should) ask the company to withhold a higher percentage.  The amount withheld will create a tax credit on your next tax return but you could still owe more money on it especially if you have other income sources.

More than one RRIF account

If you have more than one RRIF account, the mandatory amount has to be taken out of each account.

What if I don’t want a RRIF account?

No problem – just use the money in your RRSP to purchase an annuity before the end of the year you turn 71 and you will be good to go.

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{ 100 comments… read them below or add one }

1 Alexandra

Excellent information – thanks for posting this!

2 Financial Cents

Good information to know FP, a nice overview of the rules…
Certainly something I might need to help my folks with as well in another few years!
Cheers,
Mark

3 Mr. Cheap

Good info! It was nice of you to research this for your folks.

4 Rob

Just to clarify your point on mandatory minimum withdrawals. The required mandatory minimum annual withdrawal begins the year after the RRIF is opened. So, you are correct that if you open a RRIF at 71, the minimum payments begin when you’re 72, but if you open a RRIF any earlier year, they begin the year after you open the RRIF.

5 Graham

We converted a small part of our RRSPs to RRIFs at age 65. Reason being, that the withdrawal counts as pension income which then qualifies you for the $2000 pension deduction on your tax return.

I turn 71 this year and my RRSP will be fully converted to a RRIF near year end. I presume the compulsory withdrawal for 2010 is based on the Jan 1st 2010 RRIF balance and not the much larger balance that I will have near the end of the year – Does timing affect this? Is it important to time the conversion for Dec31st?

6 Four Pillars

Graham – thanks for the great comment. Interesting point about qualifying for the pension deduction as well as the fact that you have the option of converting only part of your rrsps to rrifs if you do it early.

I’m not sure why this pension income would be necessary though. Were you still working at age 65?

Your compulsory withdrawal amount for 2010 will be based on the market value on Dec 31, 2009 (Jan 1, 2010 is the same thing).

The rule with any RRSP money converting to RRIFs is that there is no compulsory withdrawal for that year for that money. In your case the withdrawal will be based on the money you already had in your account. The money you convert this year will not affect the 2010 withdrawals.

The timing doesn’t matter so just do the conversion whenever suits you.

7 Rick Drysdale

You should mention that there is a charge for withdrawing money from a RRIF. My company charges 100 dollars for the first four and 50 dollars for each one after that. Thats why I withdraw cash quarterly.

8 Four Pillars

Rick, you are getting ripped off. Shop around, pay the transfer fee and move your account to a real financial institution.

9 Graham

Four Pillars – There was no NEED for the pension income, but if you have pension income, you qualify for the $2000 pension income tax credit. See this link:
http://www.taxtips.ca/filing/pensiontaxcredit/createpensionincome.htm

Rick – There is no charge for withdrawals from a RRIF when using BMO Investorline, and I suspect same is true of many other financial institutions.

There is no withholding tax if you withdraw the prescribed amount, but if you withdraw more, 10% will be withheld on the excess, up to $5k and 20% above that. But when you pay your taxes, the withholding is credited as taxes already paid, so no big deal. We have been drawing $10k each because between 65 and 71, we are in a lower tax bracket than we will be after RRIFs kick in.

10 Danner

Another reason to convert to a RRIF soon after turning 65 is the opportunity to split RRIF withdrawals with your spouse. By converting (all or a portion) of a RRSP to a RRIF you obtain the $2,000 pension deduction and the opportunity to split your RRIF income with a spouse.

11 Bob Adamas

In that annuities are paying poorly at this time, can they be purchased later from the RRIF?

12 Four Pillars

@Bob – You can convert part or all of your RRIF accounts to annuities at any time.

@Graham – What I was asking is why someone who is 65 not already have pension income of some sort. I’m assuming it is because they are still working?

@Danner – Good strategy.

This article was intended to be fairly “basic”, but maybe a followup article is in order since there are a ton of interesting other strategies to keep in mind with RRIFs.

13 Graham

4 Pillars
Many who are 65 have no pension income other than CPP/OAS. We didn’t all work for goverments or large corporations. Only 27% of Canadians have a pension plan. CPP/OAS do not qualify as pension income for purposes of the pension tax credit. So, you don’t have to be working to not have a pension!

From Taxtips.ca:
What income qualifies as eligible pension income for purposes of the pension income tax credit?

For taxpayers who are 65 or older in the year (pension income):

- life annuity payments from a superannuation or pension plan, including life income funds (LIFs) and locked-in retirement income funds (LRIFs)
- payments from a RRIF
- annuity payments from an RRSP or from a deferred profit sharing plan (DPSP)
- certain payments on the termination or winding-up of a DPSP
- regular annuities and income averaging annuity contracts (IAAC) reported in box 24 of a T4A or box 19 of a T5

14 Rick Drysdale

Graham
BMO does charge for partial deregistration, term for withdrawing from a RRIF, In fact it is 50 dollars as of beginning of 2009.

https://www.bmoinvestorline.com/Commissions/FeesBrochureTFSA.pdf

15 Nedra Whimby

https://www.bmoinvestorline.com/Commissions/FeesBrochureTFSA.pdf
Check this link Graham and tell me they do partial deregistration for free.
None of the companies I checked did it for free.

16 Nedra Whimby

FEES FOR REGISTERED ACCOUNTS
For RRSPs, LIRAs:
No fee when your account value is greater than or
equal to $25,000.* An annual administration fee of
$100 is charged for accounts less than $25,000 and is
debited from the account in advance each year.
Fee is waived until December 31 in the year when
account is opened.
For RIFs, LIFs or LRIFs:
RRSP/RRIF deregistration $50.00
LifeLong Learning Plan………………………….. $25.00
Home Buyers’ Plan……………………………….. $25.00
(Taxes may apply.)

17 Graham

Regarding fees for RRIF withdrawals – I am sorry, you are both wrong. BMO do NOT charge for regular RRIF withdrawals.

They ask you at the beginning of the year what your withdrawal schedule will be. This could be a single withdrawal or multiple withdrawals. If you stick to your plan, there is no fee. If you make an unscheduled withdrawal then there is a fee.

I made scheduled $10k withdrawal from my ~$40k RRIF in December. Here is a copy of the transaction – no fees!

Dec 10, 2009 Dec 10, 2009 Federal tax FED TAX WITHHELD ON RIF PAY -$1,744.52 CDN
Dec 10, 2009 Dec 10, 2009 Payment RRIF PAYMENT -$8,255.48 CDN

Corresponding numbers appeared in our taxable account – NO FEE.

18 Four Pillars

I’m going to agree with Graham. The fee schedule that Nedra attached shows a fee for RRIF deregistration which isn’t necessarily the same thing as making a withdrawal.

I think that fee would apply if you are moving part or all of the RRIF to an annuity for example.

19 Ivan

In setting up a RIF withdrawal schedule is there a strategy? Is a frequent such as monthly schedule preferable, or less frequent one such as quarterly or half yearly?
Thanks.

20 Four Pillars

Ivan – Assuming you don’t pay fees for every withdrawal then the best strategy is just to match the withdrawal schedule to your cash needs.

Do you want to get paid every week? Once a quarter?

I mentioned in the post that if you don’t really need the money then just get it out at the end of the year.

Maybe others have strategies they use?

21 Graham

Ivan,
I have the same question, seeing that i have to actually do this at the end of this year. What I am thinking about, is to do a withdrawal “in kind” in January for the full amount. I will chose dividend payers and trusts (their distributions will be considered dividends in 2011). This way, the income from these securities will receive better tax treatments than they would if left in the RRIF and withdrawn later at my marginal tax rate. Anyone see anything wrong with this strategy? We don’t need the money, but the income on it will be useful.

22 Melissa

What is the set minimum percentage amount determined by the government that you have to withdraw each year from a RRIF? Is there a chart or a website that has this info?

Thank you – Melissa

23 Graham

Mellisa – Google will provide what you need – enter “rrif withdrawal rates” and you will find numerous sites that provide the tables.

As pointed out in one of the previous posts, for a couple, the older spouse can elect to use the younger spouses’ age as a basis for the withdrawal.

Not sure how or when this election has to be made – will have to ask BMO.

24 Mike

You would normally elect which spouses’ age when you set up the account. I suspect it can probably be changed although once you start receiving payments it might be harder to change.

25 Graham

Thanks Mike – I researched it and you are right. You make the election when you open the RRIF. If you need to change it, apparently it is best to just open a new RRIF with the spousal age option and then transfer the first RRIF holdings into it. As you say, probably best to do this before you turn 72, but not sure if that makes any difference.

26 Mike

Thanks for the confirmation.

It seems to me that the logical strategy would be to always use the younger spouse since this will lower the mandatory withdrawal amount each year.

Obviously you still have the option to take out as much as you want if needed.

27 graeme

Some thought provoking comments; thanks. I turned 71 this year and already have a small RRIF to take advantage of the $2000 pension tax break. Of course as usual with government it is not a true $2000 deduction from taxable income but rather a tax credit! The idea of opening a new, second RRIF by year’s end is interesting. Given the claw back of OAS if you have managed to squirrel away some income producing non registered savings, using your spouse’s younger age, assuming that is possible, might help reduce said clawbacks. What do you think?

28 Mike

Graeme – Yes, you can use a spouses age to determine the RRIF minimum withdrawals. This will lower the minimums, but the effect won’t be significant if the spouse is only a couple of years younger.

This is a a good reason to have a 25 year old spouse when retired. :)

Also – you don’t need to open up a 2nd RRIF account. You can convert your RRSP into your existing RRIF account if desired.

29 Steven

Could someone keep a RRIF account and RRSP account open at the same time? Since most people have multiple RRSP accounts at different institutions, could someone keep a RRIF account and also an RRSP account to make RRSP contributions later? I am 65 years old and I have a part time work. What are the CRA rulings for this? What is the advantage for doing this? Could someone comment? Thanks

30 Mike Holman

@Steven Yes, you can have a RRIF account and RRSP account open at the same time.

The benefits are:

1) If you need $2,000 of pension income to qualify for the pension tax credit, then a RRIF can provide this for you.

2) You can set up regular withdrawals from a RRIF account, which you can’t normally do with an RRSP account.

31 Steven

Thanks Mike

32 Welly

Thanks for your information on RRIF’S. This is the most info I have ever received on this subject. I am 69 and my wife and I have only one RRIF which is in my mame.
Would you kindly answer this question: How much money can I take out of my RRIF
and still do income splitting with my wife (She does not have any income except for
Old Age Pension).
Thanks,
Welly

33 Robert

What I want to Know, I started withdrawing the Mininam at 71
at what age or howlong do the payments stop

34 DanP

Great site, just found it. I have a question can you convert some of a RIFF back to a RRSP? I may need a RRSP to absorb proceeds of a RESP.

Any insite would be appreciated.

35 Mike Holman

@Dan Don’t worry about the RRIF. What you need is some RRSP contribution room in order to move the RESP (non-contribution portion) to an RRSP.

If you have RRSP contribution room then you just need to set up a new rrsp account and move the RESP money to it.

36 John

I converted my RRSP’s to a RRIF account last year. When I contacted my financial advisor this year to determine my monthly withdrawal I was advised that they had made a mistake on last year’s withdrawals. I received $5,000 too much. My withdrawal this year has been reduced to half. What are my options? What do you suggest?

37 Money Smarts Blog

@John – That doesn’t really make sense. There is no maximum withdrawal amount from a RRIF account. And you don’t have to make any withdrawals in the conversion year.

You need to talk to your advisor – I can’t tell from this information what the problem is.

38 Mike Holman

@NL – you should be able to do that. No capital gain/loss issues.

You’ll have to ask your financial institution about commissions.

39 Captain Pete

So, can I have more than one RRIF? If one RRIF can only be contributed to once with a lump sum and the amount reduced by withdrawals, then, if I say have other money that is in RRSP’s that I want to convert at a later date, then I could open another or more RRIF’s at a later date. This would allow me to have say a small RRIF at 55 and be able to capitalize on the $2,000 pension tax credit, while continuing to invest in RRSP’s until I am 71. Any comments on this analegy? Thanks.

40 Claude

went online and found this site wanted to familiarize myself with rrifs. great site thanks for the information.

41 Sammy

When you have different RRSP accounts at different financial institutions or even in the same institution, and it is time to set up RRIF and withdraw at age 71-72 do you need to take the required percentage out of each account- it is frustrating that this info is not readily available….

42 Dianne

Can you designate a beneficiary for the RRIF?

43 Mike Holman

@Dianne – Yes, you can.

44 Jennifer Anderson

Not sure what to do. I am a Canadian and have gotten married and have moved to the UK, filed as a non resident last year and would like to cash in some of my RRSP’s to buy an investment property in the UK. Have heard that I would pay 25% tax if I cash in an RRSP but that I can convert to an RRIF (even though I am only 47) and will only pay %15 tax. True?

45 Jerry

Hello
I am receiving monthly RRIF proceeds. Can I splite the total T4 I receive at the end of the year with my spouse, the same as I splite my penson? Please e-mail me Thanks
Jerry

46 Robin

Thanks for all the great info.My question is :I am 58 and retiring in 2 months .I will need $1300-1500/month from my RRSPs which I am converting to a RRIF in a month. What would be the best way to do this and pay the least tax? Should I split this income with my spouse who is over 65 , has very little pension income and never has to pay taxes?

47 John Ferguson

Hi. I am only 55 but looking into rrif’s. I have 2 freinds that bought rrif’s with smaller pension amounts. Lynn had 53,000 in her pension fund and was told she could only get $134.00 per month because it had to last until age 90. Jimmy had 110,000 and gets 340 per month but same thing. Cannot take out more per month because it has to last to age 90. Both are at T.D. Is this true? If all I can get is 3 or 4 hundred a month I might just put my pension in a sock under the bed and take out what I want when I want.
John

48 Mike Holman

@Robin – You should talk to a tax professional.

@John – Are you sure they were buying investments in a RRIF account? Sounds like they bought annuities – different ball game.

49 Arpad Mayer

Mike Holman,
Can I convert one of my RRSP to RRIF to create a $2000/year pension income and still make RRSP contributions? I am 65 years old. Thank you.
Best regards,
Arpad

50 Mike Holman

@Arpad – Yes, you can.

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