If you've been diligently saving in your RRSP for years, there's one hard deadline you need to know: the year you turn 71 is the last year you can hold an RRSP. By December 31 of that year, you must do something with it. Most Canadians convert to a RRIF.
What Is a RRIF?
A Registered Retirement Income Fund (RRIF) is the natural successor to your RRSP. You transfer your RRSP assets directly into a RRIF, no tax event occurs at conversion. The investments inside can stay exactly the same.
The key difference: instead of contributing to the account, you must now withdraw a minimum amount every year. CRA sets the minimum percentage based on your age.
Minimum Withdrawal Rates
At age 72 (the first year you must withdraw), the minimum is about 5.28% of your RRIF value at the start of the year. The percentage increases each year as you age, reaching about 20% by age 95.
For example, if your RRIF is worth $400,000 at age 72, you must withdraw at least $21,120. You can always withdraw more, but you can't withdraw less without penalty.
All RRIF withdrawals are added to your taxable income for the year.
Using Your Spouse's Age
If your spouse is younger than you, you can elect to base your minimum withdrawals on their age instead. This results in lower mandatory withdrawals, which may be preferable if you don't need the income and want to defer taxes longer.
Other Options at 71
Aside from a RRIF, you can:
- Purchase a life annuity (a guaranteed income stream for life from an insurance company)
- Simply cash out the RRSP entirely (the full amount becomes taxable income in that year, rarely optimal)
Most financial planners in Ottawa recommend a RRIF as the default choice, with the option to purchase an annuity later if income certainty becomes a priority.
Tax Planning in Your RRIF Years
Once you're drawing from a RRIF, tax planning shifts to managing the size of your withdrawals. Strategies include:
- Taking larger withdrawals in lower-income years
- Splitting income with a spouse (pension income splitting rules apply to RRIF withdrawals after age 65)
- Monitoring the OAS clawback threshold (RRIF income counts toward it)
Start Planning Before 71
For newcomers to Canada who are decades from retirement, the RRIF rules might feel distant, but understanding the destination helps you build toward it. Ottawa financial advisors often recommend reviewing your RRIF conversion strategy starting in your late 60s, so you're not making rushed decisions under a hard deadline.
