RRSP to RRIF: What Happens When You Turn 71
You can't keep your RRSP forever. By December 31st of the year you turn 71, you must convert it to a RRIF, buy an annuity, or withdraw it all. Here's what that means for your retirement income.
The Deadline
The rules are clear: your RRSP must close by December 31st of the year you turn 71. You have three options:
- Convert to a RRIF — Most common choice. Investments stay tax-sheltered, but you must withdraw minimums annually.
- Buy an annuity — Exchange your RRSP for guaranteed income for life. Less flexible but no investment decisions.
- Withdraw everything — Pay tax on the entire amount in one year. Almost never the right choice.
Most Canadians choose the RRIF route because it offers the most flexibility while keeping the tax shelter intact.
RRIF Minimum Withdrawals
Once you have a RRIF, you must withdraw a minimum amount each year. The percentage increases as you age:
| Age at Jan 1 | Minimum % | On $500,000 |
|---|---|---|
| 71 | 5.28% | $26,400 |
| 75 | 5.82% | $29,100 |
| 80 | 6.82% | $34,100 |
| 85 | 8.51% | $42,550 |
| 90 | 11.92% | $59,600 |
| 95+ | 20.00% | $100,000 |
These are minimums—you can always withdraw more. But you can never withdraw less.
The younger spouse option: If your spouse is younger, you can use their age to calculate the minimum. This reduces required withdrawals and keeps more money growing tax-sheltered longer.
The Tax Problem
Every dollar you withdraw from a RRIF is taxed as regular income. Combined with CPP, OAS, and any other income, this can push you into higher tax brackets or trigger OAS clawback.
The minimum withdrawals are designed to ensure CRA eventually collects tax on your RRSP savings. By your mid-90s, you're forced to withdraw 20% per year—the government wants its share before you're gone.
Pre-Conversion Strategies
Smart planning happens before you turn 71. Consider:
RRSP Meltdown in Your 60s
If you retire early, you may have years between retirement and age 71 where your income is relatively low. This is prime time to draw down your RRSP:
- Withdraw enough to fill lower tax brackets
- Convert taxable RRSP money to tax-free TFSA
- Reduce your RRSP balance before forced minimums kick in
The TFSA Shuffle
Withdraw from RRSP, pay tax at your current (hopefully lower) rate, then contribute to your TFSA. You've converted tax-deferred money to tax-free money. The younger you start, the more years of tax-free growth you get.
Timing Your CPP and OAS
If you're planning significant RRSP withdrawals before 71, it might make sense to delay CPP and OAS. This keeps your income lower during the meltdown years and gives you bigger government benefits later.
After Conversion: Managing Your RRIF
Once you're in RRIF territory:
- Take only the minimum if you don't need the income—let the rest grow tax-sheltered
- Time your withdrawals to manage tax brackets, especially near year-end
- Coordinate with your spouse to minimize household tax
- Watch for OAS clawback—RRIF income counts toward the threshold
What Happens to Unused RRIF at Death
If you die with money remaining in your RRIF:
- Spouse as beneficiary: Can roll it into their own RRSP/RRIF tax-free
- Other beneficiaries: Entire balance added to your final tax return, taxed as income
A large RRIF at death can mean a massive tax bill on your final return. Another reason to consider drawing it down while you're alive and in lower brackets.
How Talk Through Wealth Helps
Model the full RRSP-to-RRIF transition:
- Project minimum withdrawals year by year
- Compare early meltdown strategies vs waiting until 71
- Optimize RRSP-to-TFSA conversions in low-income years
- See how RRIF income interacts with CPP, OAS, and clawback
- Model estate scenarios and final tax implications