RRSP to RIF Conversion — Tips for Retirement Planning

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As the year end approaches, Canadians who celebrated their 71st during the year are likely in discussion with their advisor or custodian about the mandatory conversion of their Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund (RRIF). The exercise can be an intimidating one for those whose talents and interests lie outside the financial arena, but the event is really quite straightforward.

Over the years, your RRSP grew progressively larger as you made contributions and the investments grew and generated income. All growth and income within the account was tax free and the contributions you made reduced your taxable income in the year it was made, lowering your taxes. The design of RRSPs — tax free growth and income-reducing contributions — is very much purposeful: to encourage retirement saving.

But all good things must come to an end. Canada Revenue Agency (CRA) rules dictate that by the end of the year in which you turn 71, you must convert your RRSP to a RRIF. As with the RRSP, investments held within the RRIF continue to grow and generate tax-free returns. However, your new RRIF now has a CRA-mandated withdrawal rate, meaning a percentage of the RRIF must be withdrawn each year, and that withdrawal amount is taxable as income at the investor’s personal tax rate.

Administratively, the transfer from an RRSP to a RRIF is straightforward. It involves the submission of RRIF account opening documents to the investor’s custodian or investment dealer and a subsequent transfer request to move