Should You Max Out Your RRSP Before Converting to an RRIF?

Ask MoneySense

My husband and I retired last September. We have moved into a condo and are now travelling. Enjoying life but I’m concerned about his RRIF. My husband turns 71 in June 2025. So, I understand we can contribute to his RRSP for 2025 before he turns 71 and claim the contribution for the 2025 tax year, but what happens next?

—Chris

When to convert an RRSP to a RRIF

Congratulations on your retirement, Chris — it’s great to hear you and your husband are enjoying this next chapter. Downsizing to a condo often frees up cash, and that can raise questions about whether to top up RRSPs before they become RRIFs. Here’s a clear, practical guide to what happens and what to consider.

Converting an RRSP to a RRIF

A registered retirement income fund (RRIF) is the most common way to draw income from RRSP savings. You must convert an RRSP to a RRIF or purchase an annuity by December 31 of the year you turn 71. That means your husband does not have to convert the account on his June birthday; he has until December 31, 2025.

When you convert, the investments inside the RRSP can usually stay the same — cash, guaranteed investment certificates (GICs), stocks, bonds, mutual funds and exchange-traded funds (ETFs) are all commonly held inside RRIFs. The main change is the account becomes an income vehicle: you begin taking withdrawals rather than making contributions.

Withdrawing from a RRIF

RRIFs have mandatory minimum withdrawals that start the year after conversion. If you convert the year your husband turns 71, the minimum withdrawal is calculated as a percentage of the RRIF’s value on December 31 of the previous year. That percentage begins at roughly 5.28% and increases each year as the person ages. Withdrawals can be taken monthly, quarterly or annually, but the full minimum must be withdrawn by year‑end.

There is no legal maximum withdrawal from a RRIF, but withdrawals are fully taxable as income. If the recipient is 65 or older, up to 50% of eligible pension income can be split with a spouse when filing taxes, which can reduce household tax by evening out incomes. You can also base the RRIF withdrawal schedule on the spouse’s age in some cases; if the spouse is younger, the minimum percentage can be lower.

Contributions allowed before conversion

You are correct that contributions can be made up to the end of the year the RRSP holder turns 71. Your husband can contribute to his RRSP until December 31, 2025. If you are younger than him, he could also contribute to a spousal RRSP in your name up to that same deadline; he would claim the deduction, but the account would belong to you and withdrawals would be yours in the future.

However, having contribution room and available cash doesn’t automatically mean you should contribute. The tax benefit of a contribution depends on whether the deduction today reduces taxes more than the tax you will pay later when you withdraw from the RRIF.

How to think about tax timing and brackets

When you claim an RRSP deduction, it reduces taxable income for that year, producing a tax refund based on the marginal tax rate at that time. For example, if your husband’s combined taxable income is $50,000 and a $10,000 RRSP contribution brings it down to $40,000, the immediate tax savings might be around 20% of the contribution — a meaningful refund.

But RRIF withdrawals later will increase taxable income. If those withdrawals push taxable income into a higher bracket, or trigger additional taxes such as the Old Age Security (OAS) recovery (the “clawback”), the tax rate on money withdrawn could be much higher — perhaps 30% or more depending on province and total income. In some cases, the after‑tax value of RRIF withdrawals can be substantially lower than the pre‑tax amount that was originally deducted.

Because of this timing mismatch, contributing to an RRSP just before converting to a RRIF can backfire if you expect higher taxable income in retirement. If you anticipate being in a higher tax bracket once RRIF withdrawals, CPP, OAS and other income begin, the upfront tax deduction may not produce a net benefit over time.

Alternatives to topping up the RRSP

If you expect higher taxes on withdrawal, consider alternatives. Holding money in a tax-free savings account (TFSA) preserves 100% of the withdrawal power because TFSA withdrawals are tax-free. Non‑registered (taxable) accounts can also make sense if your capital gains and dividend taxes are modest. These options may offer more after‑tax spending power for travel, lifestyle or passing on to beneficiaries.

There are scenarios where contributing to the RRSP still makes sense: if you have a one-time high-income year (for example, a sale of property or a final paycheque from work) and your usual retirement income will be much lower, a contribution can reduce taxes on that high‑income year and still be withdrawn later at a lower rate.

Putting it together: a practical summary

In short, Chris, your husband can contribute to his RRSP up to December 31, 2025, and you have until that date to convert the RRSP to a RRIF if he turns 71 in June. But before you top up his RRSP, weigh the immediate tax refund against the likely tax rate on future RRIF withdrawals. If you expect retirement income to push him into higher brackets or trigger OAS clawback, it may be wiser to keep the extra cash in a TFSA or a non‑registered account. If you have an unusual high-income year, a targeted RRSP contribution could still be beneficial.

Ultimately, consider running a few simple scenarios — project expected taxable income with and without the contribution, estimate RRIF withdrawals and the resulting taxes, and compare net after‑tax funds available for spending or inheritance. If the math is close or complex, a meeting with a trusted financial planner or tax advisor can help you choose the best path for your family’s retirement goals.