When should you open a RRIF?

March 26, 2020 • Retirement Planning

There’s no minimum age requirement to open a Registered Retirement Income Fund (RRIF). As for the maximum age, retirees who wish to convert their Registered Retirement Savings Plan (RRSP) to a RRIF must do so by the end of the year they turn 71.

When to wait

In fact, waiting until age 71 to open a RRIF is often the preferred choice for retirees in their 60s who can support their retirement income from favourably taxed sources, such as non-registered investments. This strategy delays RRIF withdrawals as long as possible, which is desirable because these withdrawals, including mandatory minimum withdrawals, are more highly taxed as income.

When earlier is better

Opening a RRIF at age 71 isn’t for everyone. For some retirees, it makes sense from a tax perspective to open a RRIF in their 60s, even if the withdrawals aren’t needed as income. It’s all about projecting whether mandatory RRIF withdrawals down the road will push you into a higher tax bracket. If so, you could be better off making earlier withdrawals to draw down RRIF assets and consistently pay tax at a lower marginal tax rate.

You may wish to open a RRIF at age 65 to benefit from the pension income tax credit, which applies to $2,000 of eligible pension income annually. If you transfer just enough funds from your RRSP to enable RRIF withdrawals of $2,000 each year, you can claim the maximum credit. Also, if it suits your situation, you can withdraw $4,000 of RRIF funds each year, transfer $2,000 to your spouse, and both claim the pension income credit.

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