Author Topic: Converting an RRSP to a RRIF - timing?  (Read 2680 times)

RetiredAt63

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Converting an RRSP to a RRIF - timing?
« on: March 29, 2021, 05:27:08 PM »
Since you know I retired at 63 a while ago, it should be no surprise that this year I turn 71.  Which of course leads to the topic. 

Is there any advantage/disadvantage to waiting until near the end of the year to do the conversion?  I can do it any time, I know.  And it won't affect the rest of this year's withdrawals.  So is it just a case of whenever I feel like it?

Goldielocks

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Re: Converting an RRSP to a RRIF - timing?
« Reply #1 on: April 16, 2021, 02:57:58 PM »
YES!  I want to reduce taxes and avoid the OAS clawback even with a large RRSP.

---Note this is the answer if the OP was still 63... It really makes no difference if you are already 71, other than to note that you should move your bank before creating your RRIF to make it easier --

I plan to defer my CPP and OAS until after age 71, and draw down my RRSP between retirement and age 71 a bit faster, but keeping my income under $90k/yr during this time.  (This being a sweet spot for my tax rates).

While I do this, I am not subjected to minimum withdrawals and the RRSP accounts are a bit more flexible to switch to other banks, compared to a RRIF.   Technically you can switch your RRSP to a RRIF now, and do the same thing, but RRIFS are a bit less mobile between banks due to the extra bank accounting paperwork for transfers.

This keeps my lifetime income taxes lower overall, but I have the same income to spend....in later years, I get more CPP / OAS but withdraw less from the (now smaller) RRIF for the same total income which is planned to remain under $79k/yr. after age 71.  If I need more $$'s then I would have created larger non-registered or TFSA investments before age 71.

The RRIF minimums ramp up as you age, and can trigger OAS clawback if I live a long time (over age 88), and have a high RRIF account size with very high minimum withdrawals.  (e.g., If I don't deflate the RRIF earlier)

example - age 88, RRIF value is $700k = $70k/yr income, minimum, going up each year.  This is in the zone of large OAS clawbacks when combined with other income streams (CPP, other interest).

It is a balancing act of taxes and income before and after OAS payouts.
----------------------------------------------------------------------------------

The other advantage is that if you die with a large RRIF, and no spouse, you pay taxes at the highest marginal tax rate (51%?) on the RRIF or RRSP amounts over $215k on your final return.  It's a hidden estate tax.   That could mean up to 25% of your RRIF will go to taxes that could have gone to your heirs.
Another reason to deflate your RRSP / RRIF earlier in retirement and put the money into TFSA / Non registered accounts.

« Last Edit: April 16, 2021, 02:59:34 PM by Goldielocks »

Mighty Eyebrows

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Re: Converting an RRSP to a RRIF - timing?
« Reply #2 on: April 16, 2021, 03:53:01 PM »
I agree that the RRSP melt-down strategy is good for people who are not 70 yet.

Technically you can switch your RRSP to a RRIF now, and do the same thing, but RRIFS are a bit less mobile between banks due to the extra bank accounting paperwork for transfers.

The one thing to remember is that there is a pension income tax credit that is available for RRIF money from age 65 on, so having some RRIF (not RRSP) income for those 5 years is useful. Also, some brokerages/banks have a fee for removing money from a RRSP but not a RRIF. You can convert part of your RRSP money to a RRIF, and you can convert it back to an RRSP up to age 70 if you need to.

I am sure Goldielocks knows all this, but thought it worth clarifying.

Goldielocks

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Re: Converting an RRSP to a RRIF - timing?
« Reply #3 on: April 16, 2021, 05:34:46 PM »
Great points!  There is so much to know / tell, isn't there?  Hard to get it all out.

FWIW, it is taking over 4 months for my Dad to move his RRIF to another bank.  He started at the end of November and it just came through.

FLBiker

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Re: Converting an RRSP to a RRIF - timing?
« Reply #4 on: June 02, 2021, 01:56:58 PM »
Thanks for this!  I'm a newcomer to Canada, and I appreciate this nuance to RRSPs timing.

Can I ask, would you recommend a similar approach with traditional 403bs, IRAs, etc?  In other words, spend those down between 59.5 and 70, take Social Security / CPP as late as I can.  It seems like the same type of thing, but I want to check that I'm not missing something.  I also have a decent sized Roth IRA and taxable account.  I'm 44, and thinking I'll downshift soon, so I'm increasingly interested in withdrawal strategies.

RetiredAt63

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Re: Converting an RRSP to a RRIF - timing?
« Reply #5 on: June 07, 2021, 08:45:18 PM »
Checking back in.

Most of my RRSP was transferred to a RRIF a long time ago.  This is just the RRSP that I started when I took on my last (unexpected) job.  Not a lot in there.  I'm happy with my bank so will just do a straight transfer.

Unfortunately (or not, depending on viewpoint, because it means I have a nice retirement income) between my work pensions and my RRIF I am already getting OAS clawback.  I am finding it is a great incentive to do lots of charitable donations.  I used to donate time to organizations when I didn't have a lot of money.  Now I am giving money, because my energy is limited and I figure I only have 20 or so years left.  Got to use that time wisely!

bluebelle

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Re: Converting an RRSP to a RRIF - timing?
« Reply #6 on: June 18, 2021, 02:43:55 PM »
YES!  I want to reduce taxes and avoid the OAS clawback even with a large RRSP.

---Note this is the answer if the OP was still 63... It really makes no difference if you are already 71, other than to note that you should move your bank before creating your RRIF to make it easier --

I plan to defer my CPP and OAS until after age 71, and draw down my RRSP between retirement and age 71 a bit faster, but keeping my income under $90k/yr during this time.  (This being a sweet spot for my tax rates).

While I do this, I am not subjected to minimum withdrawals and the RRSP accounts are a bit more flexible to switch to other banks, compared to a RRIF.   Technically you can switch your RRSP to a RRIF now, and do the same thing, but RRIFS are a bit less mobile between banks due to the extra bank accounting paperwork for transfers.

This keeps my lifetime income taxes lower overall, but I have the same income to spend....in later years, I get more CPP / OAS but withdraw less from the (now smaller) RRIF for the same total income which is planned to remain under $79k/yr. after age 71.  If I need more $$'s then I would have created larger non-registered or TFSA investments before age 71.

The RRIF minimums ramp up as you age, and can trigger OAS clawback if I live a long time (over age 88), and have a high RRIF account size with very high minimum withdrawals.  (e.g., If I don't deflate the RRIF earlier)

example - age 88, RRIF value is $700k = $70k/yr income, minimum, going up each year.  This is in the zone of large OAS clawbacks when combined with other income streams (CPP, other interest).

It is a balancing act of taxes and income before and after OAS payouts.
----------------------------------------------------------------------------------

The other advantage is that if you die with a large RRIF, and no spouse, you pay taxes at the highest marginal tax rate (51%?) on the RRIF or RRSP amounts over $215k on your final return.  It's a hidden estate tax.   That could mean up to 25% of your RRIF will go to taxes that could have gone to your heirs.
Another reason to deflate your RRSP / RRIF earlier in retirement and put the money into TFSA / Non registered accounts.
Thank you Goldilocks for documenting this..... it's still too common for retirement financial "plans" to advocate sheltering RRSP/RRIF money for as long as possible.   I plan to draw down RRSP accounts and delay taking CPP as well.

Missy B

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Re: Converting an RRSP to a RRIF - timing?
« Reply #7 on: March 27, 2022, 11:07:47 PM »
I agree that the RRSP melt-down strategy is good for people who are not 70 yet.

Technically you can switch your RRSP to a RRIF now, and do the same thing, but RRIFS are a bit less mobile between banks due to the extra bank accounting paperwork for transfers.

The one thing to remember is that there is a pension income tax credit that is available for RRIF money from age 65 on, so having some RRIF (not RRSP) income for those 5 years is useful. Also, some brokerages/banks have a fee for removing money from a RRSP but not a RRIF. You can convert part of your RRSP money to a RRIF, and you can convert it back to an RRSP up to age 70 if you need to.

I am sure Goldielocks knows all this, but thought it worth clarifying.
Your posts are gold, man. I've been reading your useful advice scattered everywhere tonight.

Mighty Eyebrows

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Re: Converting an RRSP to a RRIF - timing?
« Reply #8 on: March 29, 2022, 03:35:11 PM »
Your posts are gold, man. I've been reading your useful advice scattered everywhere tonight.

Thanks! Just trying to help out with the complexities of taxes and retirement planning for us Canadians!