As you get close to retirement age, you may be wondering how to access funds from your Registered Retirement Savings Plan (RRSP). The most cost-effective answer involves a Registered Retirement Income Fund (RRIF), a tax-sheltered account that delivers a steady stream of income through your retirement years.
Let’s take a closer look at RRIFs – including RRIF withdrawals and RRIF minimums – and how they work.
The shift from contributions to withdrawals
For most Canadians, RRSP contributions are an inherent part of their working lives. These savings are not only tax-deductible, but also allow your money to grow tax-free.
When it’s time to withdraw from these savings in retirement, you’ll need to transition from an RRSP to a RRIF, which will distribute your savings through a steady stream of income. While your RRIF withdrawals will be taxed upon receipt, your principle will still grow tax-free within the RRIF.
The rules around RRIFs
How do you know when to transition your RRSP to a RRIF? There are several rules to keep in mind:
- Once you finish working – and no longer earn an income – you can no longer contribute to an RRSP.
- If you don't convert your RRSP to a RRIF, the government will treat the full value as income, delivering a significant tax hit for the year.
- You can convert your RRSP to a RRIF as early as age 55, but once you do so, you must make minimum annual RRIF withdrawals.
- If you have not converted your RRSP to a RRIF by age 71, you must do so within the year.
- Each year, you are required to withdraw a RRIF minimum – a minimum dollar amount from your RRIF investment account.
- You can exceed the annual RRIF minimum, but you cannot withdraw less than that amount.
The upside of a RRIF
There are important benefits to keeping your money in a RRIF, while you begin to draw down your savings. First, your money will continue to grow tax-free within the account, while you make RRIF withdrawals, allowing you to take advantage of market gains without being taxed on the earnings.
Second, a RRIF acts as an umbrella account, providing the flexibility to hold a wide variety of investments, including stocks, mutual funds, bonds, guaranteed investments and more.
Finally, your RRIF will supply a steady stream of income throughout your retirement years. For many, income from a RRIF – even if they only withdraw the RRIF minimum each year – acts as reliable supplement to other savings or income.
When do you start RRIF withdrawals?
The transition from RRSP to RRIF must happen between the ages of 55 and 71. Once you make the transfer, you will be required to make minimum RRIF withdrawals each year, depending on your age and the value of your plan at the beginning of the year. Note: the RRIF minimum withdrawal amount increases as you get older.
To determine the best age for you to convert your RRSP to a RRIF, discuss your retirement strategy with a Meridian advisor.
Learn more about retirement savings and RRIFs
RRSP Basics: What you need to know
The basics of retirement readiness
Six ways to add money to your RRSP
A version of this article was originally published October 2020
