What Happens To Your RRSP When You Retire (RRSP To RRIF Conversion)

hi my name's adam welcome to the channel today is video one of our five video series on what happens to your rrsp when you retire so today we're going to talk about transitioning from an rrsp a registered retirement savings plan to a riff a retirement income fund so you know transitioning from saving for retirement to having a retirement income from your rrsp so over the next five days we're going to release a video every single day on retiring in canada transitioning from you know collecting a paycheck to generating a paycheck out of your retirement savings account how that works you know some tips and tricks some transition you know how to do it effectively reduce tax bills along the way and just make sure that you set yourself up for the most effective retirement income flow that you can do we did a short mini series like this on cpp canadian pension plan about a month ago if you haven't watched those videos we'll put a link above here we'll also link them below as well make sure to watch our cpp videos if you're you know 50 plus kind of heading up to retirement or maybe already in retirement but haven't started your cpp make sure to check those videos out it has a bunch of information on how cpp works when to take it and case studies around taking it at 60 65 and 70. so let's jump into it what happens to your rrsp when you retire well when you retire doesn't matter where the edge you retire at you don't really have to do anything with it until you want to start drawing income out of it so you have your rrsp let's assume you're 65 years old and you pull the trigger and you retire you can actually start redeeming money right out of your rrsp now not beneficial to do so but you could technically just start pulling money out of your rrsp there would be a withholding tax uh anywhere from 10 to 30 percent depending on the amount that you took out so there'd be withholding tax you get left with the net amount and that would be taxable income to you you can't split that income is taxable income to you in the year that you withdrew it now a more beneficial way or a better way to do it once you hit retirement is to convert your rrsp to a riff again whether you do it 65 60 70 it doesn't really matter with the conversion from an rrsp to a riff that has to be done in the by the year you turn 71 so in the year you turn 71 if you haven't already converted your rrsp to a riff that needs to be converted to a riff now you do not have to take money out that very first year okay so the very first required withdrawal out of your rif if you convert at year 71 is in the year you turn 72. so that first year where you convert no withdrawal has to be done you can if you want but doesn't have to be only in the 72nd year you'd have to actually take some money out now if you retire a bit earlier so let's say you know you reach out to me and say you know adam i'm 60 years old i retired a bit early i'm not starting cpp whatever and i actually want to draw a bit of an income out of my rrsp how do i do that tact efficiently and effectively so our recommendation is always to convert some maybe all depending on how big your rrsp is of that money to a rif so let's say you have 500 000 in an rrsp and you want to generate ten thousand dollars a year of income out of there what i would recommend doing is you can move part of your rrsp to a rift you don't have to convert the whole amount at once so let's say out of your 500 000 rrsp we would convert 100 000 let's say or 50 000 to a riff okay they're invested the exact same an rsp and a riff that's basically the umbrella that the name of the account the investments themselves within the account can be the same they can be different however you want to do but technically you could have the exact same structure portfolio investment under a riff as you do under your rsp so we would move about 50 to 100 000 from your rrsp over to the riff and start drawing money out of there so when you move money to a riff a retirement income fund there is a minimum amount that you have to take out every year we'll put a link to that below so once you've made that conversion there is a minimum requirement that you have to take out there's no maximum okay so if you put 50 000 over to your riff and you know something came up and you needed to take the whole amount out you can do that there's no maximum on a riff okay um so if you when you take that money out anything up to the minimum amount so let's say you put a hundred thousand in there and the minimum for the year is four thousand dollars and that's all you take out for the year there is no withholding tax on the minimum amount of rift withdrawal anything above the minimum there's a withholding tax okay zero to five thousand dollars is ten percent five to fifteen thousand dollars is twenty percent and anything above fifteen thousand over the minimum amount is 30 withholding tax so the withholding tax numbers are the same as if you pull money out of an rrsp earlier as well so they work the same but again that minimum amount no withholding tax but remember it's still taxable income so if you have a pension plan and other things going on other income sources coming in if you take four thousand dollars out of your riff there's no taxes withheld at source but maybe you you can turn that on if you want so talk to your financial planner investment person whoever looks after your riff maybe you want to have a 10 or 20 percent withholding tax on anything you pull out because you are going to be taxed on it come tax time so when you hit retirement you want to convert some or all of your rrsp to a rif once you start pulling money out of there so as soon as you need to start redeeming money in retirement from your rsp we would recommend converting some more all of it depending on how much rxp you have and how much income flow that you need out of your riff you know again summer all of your rsp to a riff at time of income need okay and again this can be done it has to be done by the year you turn 71 but it can be done earlier it can be done any time after you turn 55 okay so there's some flexibility there and we'll get into it in a future video this week about the pension income tax credit so you know part of this and we'll go into that in that video there's a benefit to converting to a riff versus just pulling money out of your rsp also money that you take out of a riff can be income split so you know we'll go through that as well in a future video as well so in general terms this video we're just talking about what happens to rsp when you retire well when you retire it needs to be converted to a rif now lastly in this video i just want to talk about a locked in rrsp because many of you will have a locked in rsp how does that differ from a regular rsp so a locked in rsp would have come from an old defined contribution pension plan from an old employer okay so it would have transferred to a locked in rrsp now when you retire that locked in rsp converts to what's called a locked-in riff the difference with a locked-in riff versus a regular riff is there's gonna be a maximum amount that you can take out okay so there's a minimum and there's also a maximum so you kind of have to fall within a boundary whereas a regular riff there's that minimum but there's no maximum so that would be the difference if you have a locked in rsp versus a regular rsp when you retire and start drawing income out of it a regular riff minimum no maximum a locked in ref has that same minimum but no max or it has a maximum so just be aware of that maximum on the locked in no maximum on the regular rsp so that's the last little bit of advice for transitioning into retirement so when you retire you want to convert your rrsp to a riff whether all at once or maybe important parcel most of our clients we will do a bit at a time depending on their income stream other income sources that they have a taxable situation and also look at income splitting like any money that you need out of your rrsp in retirement you want to have it out of your rift because you can split that income again we'll get into that later this week in a future video so hopefully that gives you kind of a clear idea on what happens to rsp when you retire like where does it go how do i take money out of it so tomorrow we're going to talk about rift minimums and the pension income tax credit so that video is going to come out tomorrow so stay tuned for that thanks so much for joining us today in this video if you haven't already subscribed to the channel make sure to do so click the subscribe button below and click that notification bell and you'll get a notification every day this week when we post a brand new video on what happens to rsps when you retire talking about tax strategies tax planning income planning income splitting all that kind of stuff so thanks again for joining us have a great day you

Channel: Parallel Wealth

Views: 47,687

Keywords: Financial Planning, Retirement Planning, Retirement, Tax Planning, Investing, Real Estate Investing, Savings, Passive Income, RRSP, TFSA, Wealth, Parallel Wealth, rrsp explained, rrsp explained canada, rrsp retirement, rrsp rrif conversion, rrif

Id: MRv-0lhryJs

Length: 9min 14sec (554 seconds)

Published: Mon Apr 19 2021