How to consolidate your registered accounts for retirement income in Canada

Before you convert RRSPs to RRIFs

When you have a registered retirement savings plan (RRSP), you can only keep it open until December 31 of the year you turn 71. By that deadline, you must choose from these three options:

1. Cash in the account.
2. Buy an annuity from a life insurance company.
3. Convert the account to a registered retirement income fund (RRIF).

Cashing in an RRSP

Cashing in RRSPs is not typically advised, unless the account amount is relatively small. Money withdrawn from an RRSP is considered income, so the entire account would be fully taxable if collapsed. 

Buying an annuity with an RRSP

Annuities are coming back into vogue now, since interest rates have been rising the past few years. However, they are still a relatively unused registered account solution. When you buy an annuity, you hand over a lump sum of money in exchange for an ongoing payment from a life insurance company, and the income taxes are deferred until the annuity pays you in regular installments. So it’s like buying a pension. 

Annuities can be a good option for Canadians without a pension, so that at least a portion of their retirement income guaranteed. Good candidates also include those with a low investment risk tolerance, or people in good health who expect to have a long life expectancy. 

Converting an RRSP into a RRIF

The last RRSP solution is the most common. Many Canadians convert their RRSP account to a RRIF account. A RRIF has minimum withdrawals that you need to take each year based on your age, and those rise over time. RRIF withdrawals are taxable income to the recipient. 

When should you consolidate registered accounts to prep for retirement income?

You can consolidate your RRSPs when you convert them into a RRIF so that you have a single registered account. You can also consolidate your RRSPs long before you convert them to RRIFs. So, if you have multiple RRSP accounts, you could consider consolidating them at any time. 

Consolidation has its benefits, including having a single RRSP account to monitor. It also leads to lower account administration fees and/or investment management fees. 

Can an RRSP and a spousal RRSP be combined into a single RRSP?

A spousal RRSP is an account that one spouse owns but to which the other spouse contributes. The intention is to allow the use of the contributor’s RRSP room and the contributor claims tax deductions on the contributions. The withdrawals from the account become taxable to the other account holder. 

There is a spousal attribution rule with spousal RRSPs that applies if you take withdrawals within three years of your spouse contributing. This may result in the withdrawals being taxed back to the contributor.

When you combine an RRSP and a spousal RRSP, whether you like it or not, the new account must be a spousal RRSP. As a result, you would typically transfer an RRSP into the existing spousal RRSP. 

There are no tax differences between an RRSP and a spousal RRSP for withdrawals, other than the aforementioned attribution rules. 

Even if you separate or divorce, your spousal RRSP cannot be converted to a personal RRSP. 

As a result, Steve, your wife could combine her RRSP and her spousal RRSP by converting them both to a spousal RRIF. I would be inclined to do this. 

Combining LIRAs with other registered accounts

Locked-in RRSPs have different withdrawal and consolidation rules than regular and spousal RRSPs. The locking-in provisions of your wife’s locked-in retirement account (LIRA) are meant to prevent large withdrawals. These funds would have come from a pension plan she previously belonged to. Pension money is treated differently from personal retirement savings, such that locked-in accounts have maximum withdrawals as well as minimum withdrawals. 

In some provinces, an account holder may be able to unlock their locked-in account if the balance is below a certain threshold. This may apply for your wife, Steve, as you mentioned the account is small. Some provinces also allow a one-time unlocking of a portion of the account when you convert a LIRA to a life income fund (LIF), which is essentially a RRIF equivalent for a LIRA. 

As a result, Steve, your wife may be able to get some or all of her LIRA account transferred to the same RRIF as her RRSP and spousal RRSP. If not, she will have to settle for having a RRIF and a LIF. 

Transferring and consolidating registered accounts for retirement

When you make transfers between registered accounts, they can typically be done on a tax-deferred basis as long as the transfers are made directly between accounts by the financial institution. 

It is important to consider the timing of your account conversions, to consider unlocking locked-in accounts to consolidate with non-locked-in savings, and to plan for the future tax payable on your registered withdrawals. 

Read more about RRIFs:

• Should you hold gold in a RRIF?
• Can you delay a RRIF withdrawal?
• RRSP to RRIF, and LIRA to LIF: How it all gets done
• Can you transfer a RRIF to a TFSA—and what are the tax implications?

About Jason Heath, CFP

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 whatsoever.

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