While your Registered Retirement Savings Plan (RRSP) helped you save for retirement, a Registered Retirement Income Fund (RRIF) will allow you to enjoy and use those savings. You can convert your RRSP to a RRIF at any time, but you have to do it by December 31 of the year you turn 71. Here’s what to consider if you’re thinking about converting before then :
Once you convert to a RRIF, you’ll have to withdraw a minimum amount from it each year as determined by federal regulations (even if it’s more than you need).
Because RRIF withdrawals are considered taxable income, taking money out too early or more than you need could put you in a higher tax bracket and leave you with a larger tax bill. Withdrawals could also potentially reduce certain government benefits, like Old Age Security (OAS).
An RBC Financial Planner can help you determine if your tax bill or benefits will be affected—or if it’s the right time to convert.
Use the RRIF Calculator to estimate your minimum withdrawal.
If you’re still earning an income and wish to continue saving, keep in mind that you can’t make contributions to a RRIF. However, you can keep putting money into your RRSP right up until December 31 of the year you turn 71. After age 71, you can only contribute to an RRSP if it’s in your spouse’s name, your spouse is under age 71, and you have remaining RRSP contribution room.
Also, remember that money you withdraw from your RRIF can no longer grow tax-deferred.
If you’re not sure if you need the income from a RRIF right now, consider making a list of your regular monthly expenses and review them against your potential income sources. If you don’t need the extra income now, it may be a good idea to wait to convert. That way, you’ll minimize the impact on your taxes and other payments.
Estimate your cash flow with our Retirement Budget Calculator.
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