Many Canadians feel a sense of uncertainty when their RRSP approaches maturity. After years of disciplined saving, the thought of withdrawing money from those hard-earned investments can be stressful. Clients often ask, “What happens to my RRSP when I retire?” or “How do I take income without losing too much to taxes?” It’s a common concern that deserves careful planning. One option available is to convert your RRSP into a Registered Retirement Income Fund (RRIF), which allows you to start drawing income while continuing to keep your investments tax-deferred.
Understanding how to convert, withdraw, and manage your RRIF can make a real difference in how long your money lasts and how much tax you pay along the way. Here’s a breakdown of what you should know as your RRSP approaches maturity.
1. What’s a RRIF account?
You can think of a RRIF as an extension of your RRSP. Your RRSP helps you save for retirement, while your RRIF helps you spend those savings strategically.
When you convert your RRSP to a RRIF, your investments stay tax-deferred inside the plan. The key difference is that you must start taking mandatory minimum withdrawals, which are then counted as taxable income.
In other words, your RRIF keeps growing tax-deferred, but once you start withdrawing, those payments are taxed just like RRSP withdrawals. The goal is to strike a balance between maintaining steady income and keeping more of your money working for you.
2. When to convert to a RRIF
By law, you must convert your RRSP by December 31 of the year you turn 71. You can do it earlier, but 71 is the latest possible date.
When you’re ready, you have three main options:
i. Convert your RRSP to a RRIF
ii. Purchase an annuity
iii. Withdraw your RRSP in full
Canadians often choose the RRIF because it offers flexibility. You can decide how often to receive income, whether it’s monthly, quarterly, or annually, and you control how the remaining investments are managed. You also don’t have to take any money out in the same year your RRIF is opened. The minimum withdrawal requirement starts the following year, giving your savings a bit more time to grow.
3. How to withdraw from a RRIF
You must withdraw at least the minimum annual amount set by the CRA, based on your (or your spouse’s) age and the prior year-end value of your RRIF.
For example, at age 72, the minimum % of withdrawal is 5.4%. If your RRIF is worth $500,000 by the end of the year you turn 71, you’d withdraw $27,000 that year. You can withdraw more, but excess amounts may trigger extra tax.
Withholding tax on excess withdrawals
The minimum withdrawal isn’t subject to withholding tax, but amounts above it are:
10% on up to $5,000
20% on $5,001–$15,000
30% on over $15,000
If you want to withdraw $37,000 and your minimum is $27,000, the $10,000 excess is taxed at 20% — so $2,000 is withheld upfront. The final tax amount is reconciled when you file your return.
4. Tips for RRIF tax efficiency
A RRIF offers flexibility, but good planning helps you avoid unnecessary taxes.
- Time withdrawals wisely – If you don’t need the income right away, take your minimum later in the year to give investments more time to grow.
- Use your spouse’s age – Using a younger spouse’s age to calculate the minimum amount can lower required withdrawals and taxable income.
- Split income at 65 – Once eligible, you can split up to 50% of RRIF income with your spouse to reduce taxes and avoid OAS clawbacks.
- Coordinate with other income sources – Align RRIF withdrawals with CPP, OAS, and non-registered income to smooth your tax exposure.
- Review withholding vs. actual tax – Withholding may differ from what you truly owe, depending on your total income.
Converting your RRSP to a RRIF is a key step in turning savings into income. With a thoughtful strategy, you can manage withdrawals, minimize taxes, and maintain long-term growth.
If you’re nearing retirement or turning 71 soon, it’s time to start planning your RRIF strategy. Speak with your advisor to ensure your retirement planning is on track.