Q&A: RRSP/RRIF puzzle

Question: I am a working man who turns 61 in April 2010. I have worked for the same company for 16 years and can retire early on a reduced pension. I wish to supplement my income in two ways.

1. Continue working for another four years.

2. Set up a RRIF and draw out money while continuing to work. I currently have three RRSPs.

My question: Is one allowed to convert a self-directed RRSP into a RRIF or annuity, draw income from such, but continue to work and contribute to another self-directed RRSP? – Barrie M.

Gordon Pape answers: You can do that but you really don’t need to – or want to. You are allowed to have both an RRSP and a RRIF at the same time, as long as you are under 71, but there is no advantage to doing so. You’ll pay administration fees on both accounts and monitoring them will be more complicated.

Also, once you open a RRIF you are locked in. You must make at least the minimum annual withdrawal, even if you don’t need it all, and be taxed on that money. You’ll have more flexibility if you simply make RRSP withdrawals as required. If you find the money is not needed, you can leave it in the plan to compound tax-sheltered.

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