RRSP to RRIF Conversion and What It Means for XEQT Holders

What Is a RRIF and How Does the Conversion Work

A Registered Retirement Income Fund is the vehicle that transforms your RRSP from an accumulation account into a decumulation account. You must convert your RRSP to a RRIF by December 31 of the year you turn 71. Failure to do so means the entire RRSP balance is included in your income for that year and taxed as a lump sum, one of the most expensive tax events in Canadian personal finance.

The conversion itself is straightforward and does not require selling any investments. Your XEQT units transfer in-kind from your RRSP to your new RRIF account. No capital gains are triggered. No tax is owed at conversion. You simply have the same XEQT position in a new registered account with different rules. The brokerage handles the mechanics; you open a RRIF account, initiate the transfer, and collapse the RRSP before year-end.

You are not required to take any withdrawal in the year you convert. Mandatory minimum withdrawals begin in the following calendar year, giving you one additional year of tax-free compounding on the full RRIF balance.

What Happens to XEQT When Your RRSP Becomes a RRIF

Your XEQT units continue to be held in the RRIF exactly as they were in the RRSP. The fund continues to pay quarterly distributions, which remain tax-deferred inside the registered account. Distributions are not required to be withdrawn; they can be reinvested by purchasing additional XEQT units within the RRIF.

When you are required to make a mandatory minimum withdrawal, you have two options. You can sell enough XEQT units inside the RRIF to generate the required cash and transfer that cash out, or you can make an in-kind withdrawal by transferring XEQT units directly out of the RRIF to a non-registered account. The in-kind option is covered in detail in our companion guide on transferring XEQT in-kind between accounts. In either case, the full fair market value of the withdrawal is included in your income for the year.

Mandatory Minimum Withdrawal Rates

Starting the year after your RRIF is established, you must withdraw at least the prescribed minimum each year. The minimum is calculated by multiplying your RRIF's fair market value on January 1 of the year by a percentage that increases with age.

Source: Government of Canada RRIF minimum withdrawal schedule. Percentages apply to the RRIF fair market value on January 1 of each year. A down market in January reduces the dollar amount required but not the percentage.

The critical observation from this table is that by age 80, a $1,000,000 RRIF requires $68,200 in annual withdrawals regardless of whether you need the money. If your CPP and OAS already cover your living expenses, this mandatory income can push you into the OAS clawback zone or a higher tax bracket. The RRSP meltdown strategy described in our withdrawal strategy guide addresses this problem before it happens.

Withholding Tax on RRIF Withdrawals

An important and often-missed distinction: minimum RRIF withdrawals are not subject to withholding tax at the source. Your financial institution does not deduct tax before paying you the minimum. You still owe the tax when you file your return, but you receive the full amount and are responsible for setting aside the tax owing. Withdrawals above the minimum are subject to withholding at the same rates as RRSP lump-sum withdrawals: 10% on amounts up to $5,000, 20% on $5,001 to $15,000, and 30% on amounts above $15,000 (before Quebec adjustments).

This means RRIF planning requires careful quarterly estimated tax or instalment payments to avoid underpayment penalties. If your RRIF income plus other sources creates a significant tax liability, the CRA may require quarterly instalments if your tax owing exceeds $3,000 in the current and either of the two prior years.

Why You Might Convert Before Age 71

The mandatory conversion deadline is 71, but there is no minimum age for RRIF conversion. Converting at 65 rather than 71 creates access to two valuable tax benefits that RRSP withdrawals do not provide.

First, RRIF withdrawals at age 65 or older qualify as eligible pension income for the pension income tax credit, which provides a 15% federal non-refundable credit on the first $2,000 of eligible pension income. If you have no workplace pension, a $2,000 annual RRIF withdrawal at age 65 generates a $300 federal tax credit (plus provincial credit). Over 6 years from age 65 to 71, this is approximately $1,800 in federal tax savings for a minimal conversion.

Second, RRIF income at 65 is eligible for pension income splitting, allowing you to allocate up to 50% to a lower-earning spouse. RRSP withdrawals before age 65 are not eligible for splitting. For the full analysis of this strategy, see our guide on XEQT and the pension income splitting strategy.

RRIF Withdrawals and the OAS Clawback

Mandatory RRIF withdrawals increase each year as both the percentage and (if XEQT performs well) the account balance grow. For retirees with RRIF balances above approximately $1.5 million to $2 million, mandatory minimums in their late 70s and 80s can generate income well above the OAS clawback threshold of $95,323 in 2026. At a 6.82% minimum at age 80, a $1.4 million RRIF produces $95,480 in RRIF income alone, just above the clawback threshold before any other income is counted.

The strategies to manage this: draw down the RRSP aggressively in the low-income years between retirement and age 72, use pension income splitting to move up to 50% of RRIF income to a lower-earning spouse, and supplement income with TFSA withdrawals (which do not appear as income) in high-RRIF-income years.

Using Your Spouse's Age to Reduce Minimums

If your spouse is younger than you, you can elect to base your RRIF minimum withdrawals on your spouse's age rather than your own. This is a one-time, irrevocable election that must be made before the first RRIF payment. Using a younger spouse's age reduces the mandatory minimum percentage, allowing more of the XEQT position to continue compounding inside the RRIF for longer.

The election is made at the financial institution when you open the RRIF. If you miss this election, you cannot retroactively change to your spouse's age. Confirm with your brokerage before your first payment is processed.

Estate Planning With XEQT in a RRIF

If you name your spouse as the successor annuitant of your RRIF, the account rolls over to them tax-free upon your death. The RRIF continues with the same holdings (including your XEQT units) without triggering income in the year of death.

If there is no surviving spouse, the full RRIF balance is included in income on your final tax return. For a large RRIF with a concentrated XEQT position, this can create a significant terminal tax bill. Strategies to manage this include systematic drawdown during your lifetime, using life insurance to fund the tax liability, or charitable giving of registered account assets. For XEQT held in a RRIF at death with no surviving spouse, it is critical to have sufficient estate liquidity to pay the resulting tax without forcing the estate to sell the XEQT at an inopportune time.