By the end of the year you turn age 71, you must convert your RRSP to a RRIF as per government regulations. This is because your registered retirement savings plan (RRSP) matures, so you can no longer contribute to it.
At that point, it's time to transition from building your retirement fund to strategically decumulating it as it becomes part of your income.
So, how do you do it?
To answer that, we’re explaining the difference between RRIF vs RRSP, how your new RRIF works, and how to safely grow your savings through retirement:
How a RRIF works
If you were to withdraw your entire RRSP at once, you would be taxed at much higher rate. Instead, you can convert it to a RRIF and withdraw a portion of it each year to keep your taxes lower.
A registered retirement income fund (RRIF) is a savings account you take payments from to supplement your income in retirement.
You can use your RRIF to invest in the same accounts as you did with your RRSP. This allows you to grow your savings while still using your RRIF as a regular income stream.
Two common options include:
RRIF GIC
Just like with an RRSP, your RRIF allows you to make tax-deferred investments. That means you only pay taxes on GIC interest when you withdraw money. With a RRIF GIC, you can set up a payment schedule that suits your lifestyle.
RRIF high-interest savings account
A RRIF high-interest savings account keeps your funds fully accessible for whenever you need them. You can make withdrawals at any time and still earn a high interest rate on the remaining balance.
How to convert your RRSP into a RRIF
Now that you know the difference between a RRIF and an RRSP, you can better see why converting yours before the deadline is so important.
To get started, all you need to do is contact us. We can help you convert your Achieva RRSP to a RRIF or transfer your account from another institution.
Tax tip: You can make your last RRSP contribution before you convert it into a RRIF.
What is the penalty for not converting your RRSP to a RRIF?
If you don’t convert your RRSP, then all of your RRSP savings will be treated as taxable income for that year. This will put you in a higher tax bracket, and it means a significant portion of your retirement savings will be taxed all at once.
The advantage a RRIF offers is that you withdraw smaller amounts over time, which means you’re typically taxed at a lower rate.
Convert your RRSP to a RRIF with Achieva today!
While the process can seem overwhelming at first, we make it simple! If you already have an RRSP with us, or you’d like to transfer one from another financial institution, we can help. Contact us today to get started.
