Webcast #46: The Mechanics of Converting Your RSP Into a RRIF (6 minutes)

If you’re 71 years old, it’s time to convert your Registered Retirement Savings Plan (RRSP, or RSP – they’re both the same thing) into a Registered Retirement Income Fund (RRIF) by the end of the year.

Once converted, you must start withdrawing funds from your RRIF each year and no later than the year after the account is created. The required amount starts small but grows larger and larger each ensuing year. For example, at 72, you have to take out 5.4% of the RRIF’s value. That percentage keeps growing incrementally each year until eventually capping out at 20.0% by the time you turn 95. If your partner is younger than you are, you can use their age to calculate the minimum amount that must be withdrawn each year.

Withdrawals can be made monthly, quarterly, semi-annually, or annually.

Unfortunately, the money you take out from a RRIF is taxed as income. For this reason, it can be argued that contributing to an RSP is only a tax deferral strategy. The good news is that the money in your RSP rolls over to the RRIF on a tax-free basis.

You can hold the same kinds of investments inside a RRIF as you did in the RSP. For example, stocks, bonds, and preferred shares are all fine to continue owning. When you sell a position, just like the RSP, there’s no tax event. You only pay tax based on the amount of money you withdraw from the RRIF each year.

Upon your death, any value inside the RRIF goes to the beneficiary listed on the account.

When we have a client approaching the age requiring this conversion, we explain the logistics, put together the paperwork, and get the account opened so that the process is as seamless as possible.