Converting your RRSP to a RRIF: timing, tax and income rules

For many Canadians, one of the most important financial transitions is converting a Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund (RRIF). As an RRSP holder, you are required to transfer your RRSP assets to a RRIF by the end of the year you turn 71.

It may sound simple enough, but the decisions made at this stage can have a meaningful impact on how much tax you pay, how your assets are distributed to your loved ones and how long your money lasts.

Before making the switch, there are a few key questions worth working through with your advisor.

RRIF conversion FAQ

1. Should I make one last RRSP contribution?

If you're turning 71 this year and have RRSP contribution room, consider making one final RRSP contribution before converting to a Registered Retirement Income Fund (RRIF) by the end of the year.

If you're younger than 71, you can continue to contribute to your RRSP until the end of the year you turn 71. The earlier contributions are made, the longer RRSP assets can grow, tax-deferred.

If you're older than 71, have unused RRSP contribution room and have a spouse or common-law partner (CLP) who is 71 years of age or younger, consider contributing to a spousal RRSP. Contributions to a spousal RRSP will create a tax deduction on your tax return, with future withdrawals taxed in your spouse's or CLP's hands.

As long as RRIF withdrawals occur three years after your contribution is made, you can reduce your household tax bill through this income-splitting vehicle.

2. Have I named a beneficiary on my RRIF application?

Beneficiaries named on RRSP applications do not automatically carry over to RRIFs. If you'd like to transfer your RRIF assets to beneficiaries directly — without flowing through your estate — be sure to name your beneficiaries on your new RRIF application.* Failure to do so may result in your RRIF assets being distributed to your estate, leading to complex estate settlement matters or unintended distributions. Estate administration fees may also apply.

Where a spouse or CLP will inherit your RRIF, you have the option to name them as “successor annuitant” or “beneficiary”. The successor annuitant designation allows your spouse or CLP to take over your RRIF as the new annuitant based on the plan’s original terms and conditions. For example, if your RRIF minimum payments were calculated based on your age, the payments will continue based on your age when received by your spouse or CLP.

Alternatively, the beneficiary designation generally requires your spouse or CLP to set up a new RRIF based on new terms and conditions. If your spouse or CLP is older, this can lead to higher minimum payments and less tax-sheltering.

* In Quebec, when an RRSP or RRIF annuitant dies, their RRSP/RRIF flows through their estate and is subject to the terms of their will, regardless of designations made on the RRSP/RRIF application.

3. Whose age should I use to calculate RRIF minimums?

When setting up a RRIF, you have the option to calculate payments based on your own age or the age of your spouse or CLP. If your goal is to maximize the tax-deferral opportunity of a RRIF and maintain maximum flexibility, it's generally best to calculate your annual RRIF payments based on the younger person's age. This results in smaller mandatory withdrawals and allows for a longer period of tax deferral.

If you don't require the cash received from mandatory RRIF payments, consider reinvesting the proceeds in a Tax-Free Savings Account (TFSA) or, if there's insufficient contribution room, a non-registered investment account. TFSA contributions allow for tax-free growth and withdrawals. Non-registered investment accounts have the potential for dividend income and capital gains, both of which are tax-efficient.

4. Should I request increased withholding tax on RRIF payments?

Withholding tax is a prepayment of income tax, and the actual tax owing is reconciled when the tax return is filed.

Withdrawals from RRIFs are generally subject to a withholding tax of between 0% and 30%, depending on the amount redeemed. By default, only the amount above the RRIF annual minimum is subject to withholding tax.

If you regularly receive other forms of taxable income that aren't subject to withholding tax at source (for example, capital gains from the sale of investments, interest or dividend payments), you may wish to request that withholding tax be applied to the RRIF minimum amount, and/or increase the withholding tax taken from your RRIF payments. By paying more taxes early, you may pay less taxes on your other income sources. This will reduce the amount of taxes you owe when you file your income tax return at the end of the year. Talk to your advisor to request increased withholdings.

5. Am I entitled to the pension credit for RRIF income?

If you're 65 or older and receiving (or about to receive) RRIF income, consider claiming the pension credit on your federal tax return for up to $2,000 of RRIF income. A similar credit is also available provincially, which varies depending on your province of residence.

The federal credit is worth $280 and can be used to offset tax payable on any form of income. The credit cannot be carried forward to a future year, so be sure to claim the credit when available. If you're under the age of 65, the pension credit is only available for your RRIF income if received due to the death of a spouse or CLP.

If you're eligible to claim the pension credit for RRIF income, consider splitting the income with your spouse or CLP. Since 2007, income eligible for the pension credit is also eligible for pension income splitting. If your spouse or CLP is in a lower tax bracket, pension income splitting can lower the household's overall tax payable.

Also, by transferring the RRIF income to your spouse or CLP (via a joint election on your respective tax returns), you may be able to double the pension credit for your family, provided your spouse or CLP is 65 or older.

Note: When splitting pension income, be mindful of Old Age Security (OAS) clawback. Income-sensitive OAS benefits may be reduced if your net income exceeds a certain threshold, which is $95,323 for 2026. 

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