Converted to RRIF too soon

Zoomer | January 1st, 2006

Question: I converted my RRSP to a RRIF even though I am only 55 years old, as my advisor said that it was the best thing for me to do. I now do not want to take any more income from this RRIF, so can I change it back to an RRSP until I am age 69, when I realize I have to convert it to a RRIF? He is unsure about this. – J.B.

Answer:

With all due respect, I cannot imagine why your advisor suggested that you convert to a RRIF so soon. By doing so, you lost a great deal of flexibility. If the money stays in an RRSP, you can make withdrawals at any time, in any amount, or no withdrawals at all. In a RRIF, you must take out at least the government-mandated minimum each year. Also, you can continue to contribute to an RRSP if you have earned income or carry-forward room, which you cannot do with a RRIF.

There appears to be no mechanism for converting a RRIF back into an RRSP. But there is another approach you can take. The law allows you to transfer “excess amounts” withdrawn from a RRIF to an RRSP without penalty. The excess amount in any given year is the total withdrawal from the plan less the annual minimum withdrawal requirement (which is taxable). So if your minim withdrawal this year is $5,000 and you took out $20,000, you could transfer $15,000 to an RRSP. Your advisor can find the information on page 23 and elsewhere in the CCRA’s publication RRSPs and other registered plans for retirement. That’s a standard reference for this type of question and the fact your advisor did not take the trouble to research this matter himself should tell you something.

There is no limit to the amount that can be taken out of a RRIF each year (unlike the maximum imposed on a LIF). Nor is there any prohibition against owning both an RRSP and a RRIF simultaneously. – G.P.