Consolidate Registered Accounts for Retirement Income in Canada

Consolidating registered accounts

Steve, because your wife will turn 71 next year she’ll have to take action on her registered accounts before December 31 of that year. Consolidation can simplify management and reduce fees, but the rules vary by account type. Below I explain the typical options and how they apply to RRSPs, spousal RRSPs and locked‑in accounts such as LIRAs.

Before you convert RRSPs to a RRIF

An RRSP (registered retirement savings plan) must be closed or converted by the end of the year you turn 71. At that time you generally have three choices:

1. Withdraw the funds (cash in the account).
2. Use the funds to buy an annuity from an insurance company.
3. Convert the RRSP to a RRIF (registered retirement income fund).

Cashing in an RRSP

Withdrawing the RRSP balance outright is usually not recommended except for very small balances. Amounts withdrawn from an RRSP are added to taxable income for the year, so a full cash-out can lead to a significant tax bill.

Buying an annuity with an RRSP

An annuity converts a lump sum into a stream of payments from an insurance company. Taxes on the principal are deferred until you receive the annuity payments, which acts similarly to a pension. Annuities can be a suitable option for people who want guaranteed income, have a low tolerance for market risk, or expect to live many years and prefer steady payments.

Converting an RRSP into a RRIF

Most people convert RRSPs into RRIFs. A RRIF provides ongoing retirement income but requires minimum annual withdrawals that increase with age. Those withdrawals are taxed as income. Converting to a RRIF lets you spread the tax hit over many years rather than paying everything in one year.

When to consolidate registered accounts for retirement income

You can consolidate multiple RRSPs by transferring them into a single RRSP at any time, or you can transfer them when converting to a RRIF so you end up with one RRIF. Consolidation makes monitoring easier and can lower administrative and investment management fees.

Can an RRSP and a spousal RRSP be combined into a single RRSP?

A spousal RRSP is an RRSP owned by one spouse but funded by the other spouse’s contribution room. The contributor receives the tax deduction, while the account holder is taxed on withdrawals, subject to a three‑year attribution rule. If withdrawals are made within three years of a contribution, the attribution rule can make the contributor liable for the tax on those withdrawals.

If you combine an RRSP and a spousal RRSP, the account generally remains a spousal RRSP. In practice that means you would typically transfer the personal RRSP into the existing spousal RRSP rather than converting the spousal account into a personal account. There is no difference in how withdrawals are taxed other than the attribution rule described above. Even after separation or divorce, a spousal RRSP cannot simply be converted into a personal RRSP.

Given this, your wife could combine her personal RRSP and her spousal RRSP by consolidating them into a spousal RRIF when she converts. That is a reasonable approach and would preserve the intended tax treatment.

Combining LIRAs with other registered accounts

Locked‑in accounts such as a LIRA (locked‑in retirement account) follow different rules than regular RRSPs. LIRAs are funds transferred from a pension plan and are subject to locking‑in provisions designed to prevent large early withdrawals. These accounts typically have both minimum and maximum annual withdrawal rules once converted to an income vehicle.

Unlocking rules for LIRAs vary by province. In some jurisdictions you can unlock small balances or permit a one‑time partial unlocking when converting a LIRA to a life income fund (LIF), which is the locked‑in equivalent of a RRIF. Because you mentioned the LIRA balance is small, your wife may be able to unlock some or all of it and transfer the funds into the same RRIF as her other accounts. If unlocking is not permitted, she will likely end up with a RRIF for her RRSPs and a LIF for the locked‑in funds.

Transferring and consolidating registered accounts for retirement

Transfers between registered accounts are typically tax‑deferred when done directly from one institution to another, so long as the transfer is completed as an in‑kind or direct transfer. It’s important to plan the timing of conversions and transfers, consider provincial unlocking options for locked‑in accounts, and prepare for the tax consequences of required RRIF withdrawals in future years.

Read more about RRIFs:

• Should you hold gold in a RRIF?
• Can you delay a RRIF withdrawal?
• RRSP to RRIF, and LIRA to LIF: How it all gets done
• Can you transfer a RRIF to a TFSA—and what are the tax implications?