Q&A: RRSP or RRIF?

Question: Which is the better tax advantage: cashing in RRSPs or converting the RRSP into a RRIF sooner than age 71? I am 65 this year and my income is decreasing soon. I took out $20,000 from my RRSP for 2008 due to low income and now am looking forward for suggestions. – Terri, British Columbia

Gordon Pape answers: There is no difference in the way the money is taxed — RRIF payments and RRSP withdrawals are both treated as regular income for tax purposes. However, RRSP withdrawals are not eligible for the pension income tax credit whereas RRIF payments are for those who are age 65 and up. The pension amount has been raised to $2,000 and the federal credit is 15 per cent of that, or $300 off your tax payable. If you move your money to a RRIF, you will be eligible to make the claim when you file your 2009 return.