Avoid an unwanted tax bill
If you turned 71 this year, December is an important deadline. You are required to collapse your RRSP by December 31 of the year you turn 71. This is typically done by opening a RRIF (Registered Retirement Income Fund) – though you can also purchase an annuity or withdraw your RRSP funds in full and pay tax.
Failing to complete this conversion can lead to a significant tax consequence: the full value of your RRSP may be added to your taxable income for that year. This can result in substantial costs, including:
- A large tax bill – Your entire RRSP balance becomes taxable at once.
- Reduced future growth – Once withdrawn, funds no longer grow on a tax-deferred basis.
- Loss of income-based benefits – Higher taxable income could lead to the loss of government subsidies or clawbacks on other benefits (i.e. Old Age Security).
Fortunately, the process of opening a RRIF and transferring RRSP assets is straightforward. However, financial institutions require processing time so it is best not to wait until late December to start this process.
Once opened, it becomes important to understand withdrawal rules, minimum requirements, and associated tax implications.
If you are not yet 71, you can continue deferring tax with your RRSP. However, there are certain advantages from converting your RRSP to a RRIF earlier.
How much do you need to withdraw from your RRIF?
The good news is that you do not need to withdraw anything in the year you make the conversion. You just need to open a RRIF account and transfer the funds from your RRSP to the RRIF.
Mandatory withdrawals start the calendar year after the RRIF is opened – but you can even delay those until the end of the year if you want to let your account grow tax-deferred as long as possible.
In other words, if you opened your RRIF in the year you turned 71, you can defer any withdrawals until December of the year you turn 72.
The table at the end outlines mandatory CRA RRIF withdrawal rules. This is the minimum that needs to be taken out each year.
You can also try our RRIF minimum withdrawal calculator.
How much tax do you pay on withdrawals?
Any withdrawals from your RRIF are considered taxable income and are taxed at your marginal tax rate. However, the timing of tax payments depends on how much you withdraw and how you set up withholding.
You can take up to the mandatory minimum amount each year without having tax withheld on withdrawals. This does not mean that the withdrawals are tax-free – you will owe tax when you file your tax return for the year.
Withdrawals above the mandatory minimum are subject to withholding tax. The rate depends on the amount withdrawn, and the withholding is simply a prepayment toward your actual tax bill. It may be higher or lower than your final tax liability once all income is included.
If you prefer to avoid a large balance owing at tax time, you can request a specific withholding percentage to be taken on each payment. This allows you to spread tax payments throughout the year.
Using your spouse’s age to reduce minimum withdrawals
When you open a RRIF, you have a one-time option to base your minimum withdrawal schedule on your spouse’s age – provided they are younger. This can result in lower required withdrawals each year, helping to reduce taxable income.
This decision:
- can permanently reduce mandatory annual withdrawals
- only needs to be made once when the RRIF is opened
- applies for life and cannot be changed later
For couples with an age gap, using the younger spouse’s age can lower taxable income over time, help preserve income-based government benefits, and slow the pace at which your RRIF is drawn down.
Should you take more than the minimum?
Although you are only required to withdraw the RRIF minimum each year, many retirees intentionally withdraw more. Drawing additional funds early can reduce the size of your RRIF over time – especially during years when your tax rate is lower. This can help prevent larger taxable withdrawals later in retirement, reduce the risk of OAS clawbacks, and limit the tax impact on your estate.
You may benefit from taking more than the minimum if:
- you retired early and are temporarily in a lower tax bracket
- you want to make regular TFSA contributions using withdrawn funds
- you expect future income to increase (e.g., CPP, OAS, or pension start dates)
- your RRIF balance is growing faster than you are withdrawing
- estate taxes are a concern and you want to reduce the taxable value at death
There is no one-size-fits-all withdrawal rate. The optimal amount depends on your broader financial situation, including your income sources, lifestyle needs, tax bracket, and long-term retirement goals.
At Hemisphere, we help clients evaluate these factors and different withdrawal options.
What happens to your beneficiaries?
Converting an RRSP to a RRIF requires opening a new account, which means you will need to confirm or update your beneficiary designations. As with an RRSP, it is important to understand the difference between naming a successor annuitant and a beneficiary.
A successor annuitant can only be your spouse or common-law partner. When named, they assume ownership of the RRIF and continue receiving payments under the same rules. The account remains tax-deferred, and minimum withdrawal requirements continue based on the established schedule.
A beneficiary, on the other hand, typically receives the RRIF proceeds as a lump-sum payment after your death. In most cases, the value of the RRIF is added to your income on your final tax return, and the tax is paid by your estate. This can result in a substantial tax liability in the year of death, particularly if your RRIF balance is large.
Making the right designation ensures clarity for your spouse or heirs, helps manage tax consequences, and supports your broader estate plan.
Final Thoughts
Collapsing your RRSP is more than a procedural milestone. It reflects a transition from saving to spending and can influence your future income, tax position, government benefits, and estate outcomes. Certain decisions made at this stage are irreversible, such as whether to base RRIF withdrawals on your age or your spouse’s age. You should evaluate these choices carefully when proceeding.
RRIF Minimum Withdrawal Schedule
| Age of RRIF Holder (or Spouse/Common-Law If Selected) | Withdrawal Percentage |
| 65 | 4.00% |
| 66 | 4.17% |
| 67 | 4.35% |
| 68 | 4.55% |
| 69 | 4.76% |
| 70 | 5.00% |
| 71 | 5.28% |
| 72 | 5.40% |
| 73 | 5.53% |
| 74 | 5.67% |
| 75 | 5.82% |
| 76 | 5.98% |
| 77 | 6.17% |
| 78 | 6.36% |
| 79 | 6.58% |
| 80 | 6.82% |
| 81 | 7.08% |
| 82 | 7.38% |
| 83 | 7.71% |
| 84 | 8.08% |
| 85 | 8.51% |
| 86 | 8.99% |
| 87 | 9.55% |
| 88 | 10.21% |
| 89 | 10.99% |
| 90 | 11.92% |
| 91 | 13.06% |
| 92 | 14.49% |
| 93 | 16.34% |
| 94 | 18.79% |
| 95 and older | 20.00% |