Why do you convert rrsp to rrif

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Last updated: April 8, 2026

Quick Answer: Converting an RRSP to a RRIF is mandatory by the end of the year you turn 71, as per Canadian tax law. This conversion allows you to withdraw funds as retirement income while deferring taxes on the remaining balance. Unlike an RRSP, a RRIF requires minimum annual withdrawals, which are taxed as income. This process helps manage retirement savings efficiently and ensures compliance with government regulations.

Key Facts

RRSPs must be converted to a RRIF by December 31 of the year you turn 71
RRIFs require minimum annual withdrawals starting at 5.28% at age 71 and increasing with age
Withdrawals from a RRIF are taxed as income in the year they are received
RRIFs allow continued tax-deferred growth on the remaining balance
You can convert an RRSP to a RRIF at any age, but it becomes mandatory at 71

Overview

Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are key components of Canada's retirement savings system, established under the Income Tax Act. RRSPs were introduced in 1957 to help Canadians save for retirement with tax-deferred growth, allowing contributions up to 18% of earned income with annual limits (e.g., $31,560 in 2024). By contrast, RRIFs were created later as a mandatory conversion vehicle when RRSP holders reach age 71, ensuring systematic withdrawal of retirement savings. Historically, these tools have evolved alongside pension reforms, with RRIF regulations updated in 1992 to provide more flexible withdrawal options. The system aims to balance retirement income security with tax policy, affecting millions of Canadians—over 6 million RRSP accounts held approximately $1.1 trillion in assets as of 2022. This framework supports long-term financial planning while aligning with government retirement income programs like the Canada Pension Plan.

How It Works

Converting an RRSP to a RRIF involves transferring the RRSP's assets directly to a RRIF account without triggering taxes, a process called a "rollover." This is typically done through financial institutions, where you complete forms to establish the RRIF and specify beneficiaries. Once converted, the RRIF requires minimum annual withdrawals based on your age or your spouse's age if younger, using a prescribed percentage from government tables—for example, 5.28% at age 71, increasing to 20% by age 95 and beyond. These withdrawals are taxed as ordinary income, while any remaining funds continue to grow tax-deferred within the RRIF. You can choose from various investment options similar to RRSPs, such as stocks or bonds, and make additional contributions if under 71, though this is uncommon. The conversion process is irreversible, but it allows flexibility in withdrawal amounts above the minimum, helping manage retirement cash flow and tax liability effectively.

Why It Matters

Converting an RRSP to a RRIF is crucial for retirement planning, as it ensures a steady income stream while optimizing tax benefits. Without conversion by age 71, the entire RRSP balance would be taxed as income in one year, potentially leading to significant tax burdens. RRIFs help retirees manage longevity risk by providing lifelong income, with minimum withdrawals designed to deplete savings gradually—statistically, about 30% of Canadians rely on RRIFs for retirement income. This system supports financial stability in later life, reducing reliance on public pensions and aligning with broader economic goals like reducing elder poverty. For individuals, it offers control over investment growth and estate planning, as RRIFs can pass to beneficiaries with tax implications. Overall, the conversion process balances personal savings with regulatory requirements, playing a key role in Canada's retirement ecosystem.