Q&A: RRSPs and RRIFs

Question: I have never seen a clear explanation of when RRSPs should be converted to RRIFs to begin drawing income, or even if it is necessary or desirable to do so until it is required by law (at 69?).

Also, I am aware that the options for drawing income from a locked-in RRSP (one of my wife’s accounts is locked in) have changed so that we no longer need to convert the LRSP to an annuity, but I haven’t been able to find a good explanation of when an LRIF can be converted to a RRIF ( in other words, is it locked in forever)? – Mark W.

Gordon Pape answers: RRSPs do not have to be converted until Dec. 31 of the year the annuitant turns 71. My advice is to delay until then, with one exception: at 65, convert enough of the RRSP to a RRIF in order to generate enough income ($2,000) to qualify for the full pension tax credit.

There are a couple of reasons to hold off converting the rest of the RRSP money until you are required by law to do so. The first is that you’ll be able to continue to contribute to an RRSP if either of you has any earned income. You cannot contribute to a RRIF. The second is that once you convert to a RRIF, you must withdraw a minimum amount each year, whether you need the money or not. In the case of a RRSP, you can make withdrawals as required so you have more flexibility.

As for locked-in RRSPs/RRIFs, yes they are locked in forever. However, some jurisdictions allow for limited withdrawals from locked-in plans (taxable, of course) under certain conditions. The rules vary depending on the province of residence. Locked-in plans under federal jurisdiction have their own regulations about this.

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