As you near retirement, it will be time to start thinking about winding down your registered retirement savings plan (RRSP).
When do I need to convert my RRSP to a RRIF?
RRSPs are designed to help you save for retirement. According to Canada Revenue Agency rules, you must close your RRSP by the end of the year in which you turn 71, although you can certainly do so earlier if you're ready to begin generating income from those savings.
You have three options for your RRSP savings when it matures:
- Cash out the RRSP account. Depending on the size of your account, this may not be the best option as the withdrawal is subject to withholding tax and you must pay income tax on the amount withdrawn.
- Buy an annuity from a life insurance company. This gives you a fixed monthly income, usually for the rest of your life.
- Convert your RRSP to a registered retirement income fund (RRIF).
RRIFs are the most popular option because of the independence and flexibility they allow. You can carry on managing the same tax-sheltered investments that you had in your RRSP, including stocks, exchange-traded funds (ETFs), bonds, mutual funds, GICs and cash. The government requires you to make a minimum annual withdrawal from your RRIF, which increases as you age, but you can choose to withdraw a larger amount.
Key considerations when converting an RRSP to a RRIF
- You can make multiple transfers into a RRIF from an RRSP
- You can't make any new contributions once you convert to a RRIF (but you can transfer a RRIF account from another financial institution)
- Your RRIF is subject to a mandatory minimum annual withdrawal starting in the year after you open the account
- As with an RRSP, there is no tax on your investment earnings as long as the funds remain in the RRIF
- Withdrawals from your RRIF are treated as taxable income
- You don't necessarily have to sell investments in order to withdraw from your RRIF — you can complete an in-kind transfer from a RRIF to a tax-free savings account (TFSA) or to a non-registered account if you want to continue to hold your investments
- You can have more than one RRIF account
How to convert your RRSP to a RRIF
Your investments can usually be transferred directly from an RRSP into a RRIF without having to be sold and re-bought. It’s easy to convert your RRSP into a RRIF – just complete our online application.
Once your RRIF account is open, you’ll need to submit our handy online account transfer forms to move the assets from your RRSP to your new RRIF. Simply Login to your RRIF account and go to Accounts > Transfer Funds > Transfer Account.
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.