Why I Think More Canadians Should Consider a Partial RRSP-to-RRIF Conversion Before 71
For most Canadians, the rules around retirement accounts are treated like a checklist: contribute to your RRSP, then convert it to a RRIF at age 71, start taking withdrawals at 72, and so on. It’s what’s expected, and most people don’t think twice about it.
But in reality, retirement planning is far more flexible, and sometimes the best move is to break away from the “default” strategy.
One approach I think deserves more attention? A partial RRSP-to-RRIF conversion before age 71.
It’s a strategy that’s often overlooked, but in the right situation, can offer real benefits, both in the short term and over your full retirement horizon.
Why Withdrawals from RRSPs Can Be Problematic
If you’re under 71 and thinking about making a withdrawal from your RRSP, it’s worth considering the how, not just the when.
Withdrawals from an RRSP trigger withholding tax, even though it’s just a prepayment and reconciled at year-end. For some, that’s not a big deal. But if you need cashflow, say for a car purchase, home renovation, or early retirement expenses, losing 10–30% of the withdrawal upfront can be disruptive.
This is where converting a portion of your RRSP to a RRIF comes in.
Withdrawals from a RRIF, up to the minimum required amount aren’t subject to withholding tax, giving you access to your money without the immediate cashflow friction.
RRIFs Open Up Tax Advantages After Age 65
Another reason a partial conversion may be worth considering? RRIF income qualifies for the $2,000 pension income tax credit once you turn 65, and it also enables income splitting with your spouse — even if they’re younger.
RRSP withdrawals don’t offer these benefits. So if you’re over 65 and drawing income, accessing RRIF income instead can create meaningful household tax savings.
Reducing Future RRIF Minimums Matters — But It’s Not the Whole Picture
A common concern with waiting until 71 to convert your entire RRSP is ending up with a large RRIF balance that’s subject to rising mandatory withdrawals. These forced withdrawals can push retirees into higher tax brackets and even trigger OAS clawbacks.
By converting a portion earlier and gradually drawing it down, you reduce future mandatory withdrawals and create more flexibility.
But avoiding OAS clawbacks or reducing taxes in a single year isn’t the real goal.
Those are tools — not outcomes.
At Optiml, planning decisions are evaluated based on whether they increase your after-tax retirement income or grow your after-tax estate. In some cases, minimizing taxes in the short term can actually reduce long-term wealth. That’s why strategies like partial RRIF conversions should always be evaluated in the context of a full, long-term plan — not as isolated tax tactics.
Modeling the Strategy in a Real Plan
In Optiml you can now include both RRSP and RRIF accounts in your plan at the same time. This allows you to manually explore how different withdrawal strategies, benefit start ages, and conversion timing affect your long-term outcomes.
You can test scenarios like drawing from RRIF first versus TFSA, compare income strategies, and see how different structures impact taxes, retirement income, and long-term estate outcomes, all within a single plan.
A Final Thought
The default plan isn’t always the best plan.
A partial RRSP-to-RRIF conversion can offer flexibility, control, and meaningful advantages — especially for people planning early withdrawals or looking to smooth out long-term tax exposure.
But like any strategy, it has trade-offs. That’s why the real value isn’t in the tactic itself — it’s in testing it properly inside a complete, goal-based financial plan.
If you’re curious whether this strategy makes sense for you, log into Optiml and explore how different RRSP and RRIF structures impact your after-tax income and long-term estate.
