I am wondering about the minimum RRIF withdrawal calculation. We are wondering if it would be beneficial to use the younger spouse’s age to result in a lower annual combined income. Can you explain the reasoning behind this?
—Bernie
When can you convert an RRSP to a RRIF?
Registered Retirement Savings Plans (RRSPs) are tax-deferred accounts designed to fund retirement, although you may withdraw from them at any time. Withdrawals from an RRSP are generally fully taxable, except for specific programs such as the Home Buyers’ Plan or the Lifelong Learning Plan. If your RRSP originated from a pension plan transfer and is locked in (a LIRA), there may be additional restrictions.
You can contribute to an RRSP up to the end of the year in which you turn 71. By December 31 of that year you must either cash out the account (generally not recommended), purchase an annuity, or convert the RRSP to a Registered Retirement Income Fund (RRIF), which is the most common choice. You may also choose to convert earlier, and many people do so in their 60s when they retire.
When converting an RRSP to a RRIF you choose key options: the age on which minimum withdrawals will be based (your age or your spouse’s age), how often withdrawals are taken (monthly, quarterly, annually), and whether to withhold additional tax at source. Note that “spouse” includes a legal or common-law partner.
What are the minimum RRIF withdrawals?
Minimum RRIF withdrawals are calculated as a fixed percentage of the RRIF balance on December 31 of the previous year. These percentages increase with age, so the mandatory annual withdrawals grow over time. For example, at age 65 the minimum withdrawal rate is 4.00% of the RRIF balance. By age 71 the rate rises to 5.28%, by age 80 it is 6.82%, and by age 90 it reaches 11.92%. Because you are required to take increasingly larger minimum withdrawals, the RRIF balance typically decreases throughout retirement, and withdrawals are subject to ordinary income tax.
If your spouse is younger than you and you elect to base withdrawals on their age, your minimum required RRIF withdrawals will be lower. That election is made when you convert your RRSP to a RRIF. While there is no additional tax levied automatically on minimum RRIF withdrawals (unless withholding tax was applied), the amounts you withdraw count as taxable income and will affect your tax return for the year.
It’s important to emphasize that the deadline to convert your RRSP to a RRIF—December 31 of the year you turn 71—is fixed by your age and cannot be delayed by using a younger spouse’s age. The spouse’s age only affects the calculation of the minimum withdrawal percentage, not the conversion deadline.
Also worth noting: if you have a younger spouse with a spousal RRSP, you can continue to contribute to that spousal RRSP as long as you have RRSP contribution room, even after you turn 71. You cannot, however, contribute to your own RRSP once you are past the contribution deadline year.
Should you defer RRIF withdrawals until age 72?
Delaying RRIF withdrawals can reduce taxable income in the short term, especially if you base your withdrawals on a younger spouse’s age. That lower required withdrawal may be useful if you are in a high tax bracket and do not need RRIF income to cover living expenses. However, deferring withdrawals has trade-offs that should be considered in the context of long-term tax planning, benefit eligibility and estate goals.
Delaying RRIF withdrawals means your RRIF balance will remain larger for longer and could grow, which may produce higher taxable income later in your 70s and 80s when minimum withdrawal percentages are higher. A sudden increase in taxable income can raise your marginal tax rate and may trigger clawbacks of income-tested government benefits such as Old Age Security (OAS). That could increase lifetime tax paid and reduce net income available to you and your estate.
Using non-registered accounts, TFSA balances, or cash to cover living costs while deferring RRIF withdrawals is a valid strategy for some, but it can accelerate depletion of those assets. Conversely, taking RRIF withdrawals earlier—or withdrawing more than the minimum—can lower future mandatory withdrawals, possibly reduce clawbacks, and provide flexibility to contribute to or preserve TFSA room for later use. In short: minimizing tax in one year is not always the best long-term approach.
Should you base your RRIF withdrawals on a younger spouse’s age?
Yes—electing to base RRIF minimum withdrawals on a younger spouse’s age will give you the lowest required withdrawals and the most immediate flexibility. That can be attractive for cashflow and short-term tax management. However, it isn’t automatically the optimal choice for everyone. Depending on your broader retirement income plan, estate intentions, and expected longevity, you may prefer to take larger withdrawals earlier to smooth taxable income over retirement, reduce future required minimums, protect government benefits, or leave a larger estate.
Deciding whether to use your own age or a spouse’s younger age for RRIF minimums is an important element of retirement-tax planning. Consider your current tax bracket, other sources of income, expected spending needs, potential OAS clawbacks, TFSA strategy and estate objectives. A tailored plan that balances withdrawal timing and amounts across account types often produces better long-term outcomes than simply minimizing required withdrawals in a single year.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products.
Read more from Jason Heath:
- How much should you withdraw from your RRIF?
- Financial planning in your 70s
- Financial gifts: What you need to know before giving money or investments
- What time of year should you retire?