If I have two RRSP accounts, do I have to withdraw the minimum amount from each account at age 71? - Investing Questions (2024)

FAQs

If I have two RRSP accounts, do I have to withdraw the minimum amount from each account at age 71? - Investing Questions? ›

There is no minimum annual withdrawal for RRSP accounts. However, by the end of the year that you turn 71, you must close your RRSP. One option when closing your RRSP is to convert it to a registered retirement income fund (RRIF). You must start withdrawing money from your RRIF in the year after you open it.

Having multiple retirement savings accounts can make it tough to monitor the mix and returns on all of your investments, and it may be costing you more than you realize.

You can convert your RRSP holdings to a RRIF at any time. However, an RRSP must be converted to a RRIF or annuity, or paid out in a lump sum by the end of the calendar year in which you turn age 71.

You can make a withdrawal from your RRSP any time¹ as long as your funds are not in a locked-in plan. The withdrawal, however, is subject to withholding tax and the amount also needs to be included as income when filing your taxes. There are situations in which tax-deferred withdrawals can be made from your RRSP.

The 4% rule for retirement budgeting suggests that a retiree withdraw 4% of the balance in their retirement account(s) in the first year after retiring, and then withdraw the same dollar amount, adjusted for inflation, every year thereafter.

You are permitted to make multiple withdrawals from your RRSPs under the HBP; however, you are only permitted to make those withdrawals in the same calendar year as your first withdrawal, and in January of the following calendar year.

RRIFs have minimum annual withdrawals based on your age or your spouse or common-law partner's age and on the account value – both at the beginning of the year. You must continue to take at least these minimum withdrawals until no funds remain. Minimum withdrawals must start in the year after you open your account.

Because RRIF withdrawals are considered taxable income, taking money out too early or more than you need could put you in a higher tax bracket and leave you with a larger tax bill. Withdrawals could also potentially reduce certain government benefits, like Old Age Security (OAS).

Can you have both RRSP and RRIF? ›

Can I have a RRIF and an RRSP? Yes. You can choose to have both an RRSP and a RRIF. However, by the end of the year you turn 71 you must convert your RRSP to a RRIF or other retirement income option.

No Withholding Tax From RRIF Minimum Withdrawals

One difference between RRSP withdrawals and RRIF withdrawals is that there is no withholding tax deducted from RRIF minimum withdrawals. However, the withdrawal amount will be included in taxable income on your tax return.

The quick answer is yes, you can convert a RRIF back to an RRSP, but only in certain circ*mstances. Can a RRIF be converted back to a RRSP if you're aged over 71? No, you can no longer hold an RRSP after the year in which you turn 71, so you can only convert it back if you're aged 70 and under.

Strategy: Deferring withdrawals as long as possible is popular for good reason. However, for large RRSPs, drawing earlier may be a better tax strategy. That's because a large RRSP means large mandatory RRIF withdrawals, and you could end up paying more tax than if you drew on it over the years.

If you have an RRSP and you move out of Canada permanently, you can either choose to: Make a lump sum withdrawal and deregister your RRSP. You'll have to pay withholding tax and income tax on the amount withdrawn. Keep your RRSP and have your investments grow tax-deferred for Canadian tax purposes.

In the year a RRIF owner turns 60, their minimum withdrawal is 3.23% of the account value at the end of the previous year. At 65, the rate is 3.85%. At 70, it is 4.76%. A sustainable withdrawal rate can be impacted by capital inflows a retiree expects in the future.

Lastly, when an RRSP becomes “too big” it also becomes an issue for the future estate. When RRSP/RRIF assets aren't drawdown fast enough in retirement it can result in a large RRSP/RRIF being taxed in the estate. In this situation the entire contents of the RRSP/RRIF will be taxed all at once.

The taxes don't end there. Your taxable income will include the RRSP withdrawal for the year. So, if your marginal tax rate* is higher than the withholding tax rate, you'll pay extra on your withdrawal. * The marginal tax rate is the amount of additional tax paid for every additional dollar earned as income.

Limitations and Considerations for Investors

Flexibility Concerns: RRSPs lack liquidity. Early withdrawals can lead to significant tax penalties, except under specific conditions like the Home Buyers' Plan and Lifelong Learning Plan.

The maximum contribution you can make to your RRSP is 18% of your previous year's income or the current fixed contribution limit ($31,560 for 2024).