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When should I convert my RRSP to an RRIF?

When you retire, one of your options is to convert your registered retirement savings plan (RRSP) to a registered retirement income fund (RRIF). Determining the right time to convert can make for a more satisfying, worry-free retirement.

Once you turn 71 you will be required to mature your RRSPs. One option you have is converting them into an RRIF rather than incurring a large tax bill by cashing them out. The RRIF keeps your RRSP money tax sheltered until you withdraw the money.

First, the rules: Although you have until the end of the year in which you turn 71 to start using your RRSPs for income, you can convert them to an RRIF earlier. But once you convert, you must withdraw a minimum amount of income each year.

Here are three strategies for converting your RRSP to an RRIF:

Convert the year you retire
Converting to an RRIF when you actually retire may be the best option if you will not have substantial income from other sources, such as a workplace pension plan or non-registered investments. You’ve got the savings, you need them and so you use them.

If you're thinking about hanging onto your registered funds to leave to your heirs, note that that the contents may be heavily taxed if left to anyone other than your spouse or a dependent child. It may be best to use these funds for retirement. Talk to someone who specializes in estate planning.

Delay a few years after retirement
You can delay converting your RRSP and withdrawing money for a few years if you have other income or assets to fund the early years of retirement. The advantage is that retirement savings will have longer to grow while sheltered from tax.

Wait until the deadline
If you have substantial non-registered assets or a generous pension plan, delaying the conversion until the end of the year you turn 71 will give your money the maximum amount of time to grow while sheltered from tax.

For couples, consider that minimum RRIF withdrawals can be calculated based on the age of the younger spouse. Mandated minimum withdrawals are based on a percentage of assets in the plan, with that percentage increasing with age. Using the age of the younger spouse will keep minimum withdrawals lower and keep more of your savings in your RRIF longer.

You can also continue contributing to your RRSP until the end of the year you reach 71, provided you have earned income. If your spouse is younger, you may be able to contribute to his or her RRSP even when you’re past the age limit for contributing to your own RRSP.

Determining when, and how much, to withdraw from an RRIF depends on your situation. Talk to an advisor about your specific situation.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal advice.

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