Converting to a RRIF? Look Before You Leap

There’s more to converting your RRSP to a RRIF than meets the eye. Unless you’re careful, you can wind up paying too much tax, create unintended consequences for your estate – even outlive your savings.  Here are four tips to start off right.

1. Review your asset mix. While it’s normal to dial back the risk level in your portfolio as you age, you’ll still need a helping of growth to protect your nest egg’s purchasing power from inflation.  Remember to keep short-term savings handy so you won’t be forced to sell investments in a down market to fund your mandatory minimum RRIF withdrawals. 
2. Take advantage of the tax rules. If you’re 65 or over, you can split RRIF income with a lower-earning spouse or common-law partner to cut your tax bill as a couple. Plus, that income qualifies for the pension income tax credit.  Minimum RRIF withdrawal rates increase with age, so consider the option of basing your withdrawals on a younger spouse’s birthdate to keep more of your savings tax-deferred, longer.
3. Capitalize on your TFSA. Won’t need all the income the RRIF rules force you to take out each year?  Your Tax-Free Savings Account can help.  Use your available contribution room to shelter the excess funds, or, give the money to your spouse or adult child to contribute to their own plans.
4. Don’t overlook your estate. Be sure to make fresh beneficiary declarations when you open a RRIF.  Designations made in your RRSP can’t simply transfer over. If you want your surviving spouse to inherit your RRIF, think about naming them a successor annuitant. That way they’ll automatically assume title to your plan and its payments, while avoiding the extra paperwork and other drawbacks that can go with collapsing your RRIF instead.

Talk to us

Converting your RRSP to a RRIF is a decision you shouldn’t leave to chance.  That’s where a Weyburn Credit Union financial advisor comes in.  We’ll do a detailed review of where you’re at and build a comprehensive plan that lets you make the most of your retirement.  Contact us at 306-842-6641 to arrange an appointment.