@etf.go suggested that we should cover more ideas around the timing of moving an RRSP into a RRIF. He's definitely right, because this isn't a topic most of us hear about on Blossom very often. He asked how early you can convert, whether you can convert just part of it, whether you can still contribute to an RRSP afterward, and what else we should be aware of. You can convert an RRSP to a RRIF at any age. The age 71 rule is the deadline for dealing with your RRSP, not the earliest age you can make the move. If the money goes directly from your RRSP to your RRIF, the transfer itself isn't taxable. You pay tax as you withdraw it. You can do a partial conversion, too. If you had $300,000 in an RRSP, you could move $30,000 into a RRIF and leave the rest in the RRSP. And yes, you can still contribute to an RRSP after opening a RRIF, as long as you have contribution room and make the contributions by the end of the year you turn 71. You can't make regular new contributions to the RRIF. So why would you convert before 71? You might be retired and ready to start drawing income. Once you turn 65, RRIF withdrawals can also qualify for the pension income tax credit and may qualify for pension income splitting with a spouse. You can withdraw directly from an RRSP as well, so those age 65 rules are worth considering when you decide whether to convert some of it. The cost of starting early is that required annual withdrawals begin the year after you open the RRIF. You can always take out more than the minimum, but there is a percentage you have to withdraw each year, and that percentage generally increases as you get older. Every withdrawal is taxable income, whether you needed the money that year or not. To me, looking at your income across several years is the best way to make the decision. It doesn't work very well to look at one year in isolation when your income might change quite a bit between your last year of work, the start of CPP and OAS, and the years when RRIF withdrawals are required. For someone who retires before taking CPP and OAS, the years in between can be a good time to start melting down an RRSP. That just means withdrawing some money each year while their income may be lower. They may be able to pull money out fairly tax efficiently during those years, instead of leaving it all until RRIF withdrawals are added on top of CPP and OAS. Whether that works depends on their other income, so I'd want to run the numbers across those years before deciding how much to take. One other decision comes up when you open the RRIF: you can base its minimum withdrawals on your spouse's age instead of your own. You have to choose that on the original application. I covered it in my last post, but it's easy to miss when you're focused on the question of when to convert. If you've made the move, did you convert everything at once or start with part of your RRSP?
2,970 views
6 Comments
ETF Go
@etf.go · 16d
Thanks Levi. This is something we will have to consider but given we have a 15yr window before age 65 there is a lot of runway to meltdown the RRSP. Will need to look at current tax brackets and determine what the right amount will be but I’ll like do conversion in stages to maintain more flexibility on our withdrawals. Once RRSP accounts are over $1M even an 8% withdrawal rate puts us in a mid tier tax bracket and may not actually ‘melt’ the RRSP (depending on returns). Not a bad problem to have. Reality for many people may just be a high tax bill. Call it the price of success. 🤷♂️👍
Joe Money@thejoemoneyshow · 16d
My father in law turning 71 next year he has roughly 40k in his RRSP we’re thinking just take it all out this year then put it into spousal RRSP my mother in law is 62. Isn’t that a better way you just pay the tax then get the tax return back whe you do your taxes next year. Plus you don’t get forced to take 5% a year out.
Eric
@ericyums · 15d
If you dont have high income, I would not put money to RRSP. If tfsa or fhsa is maxed, I would go to margin account. Tax is better in Margin compared to RRSP. In Margin account for example, you have capital gains of $250k/yr You put $125k in your pocket tax free and the other 125k taxed. However, in RRSP, you have to control how much you withdraw in your retirement to shelter yourself from tax. Obviously not $250k/yr
See the full comment section 👀Sign up for the full Blossom experience!
