How Does the RRSP/RRIF Conversion AI Strategy Work?

The RRSP to RRIF (or LIRA to LIF) conversion strategy analyzes the optimal timing for converting these accounts to maximize tax efficiency, reduce income splitting disadvantages, and enhance overall net worth.

Key Considerations in the Strategy

1. Mandatory Conversion Deadline:
   • RRSPs must be converted to RRIFs by the end of the year you turn 71, with withdrawals starting by age 72.
2. Early Conversion Benefits:
   • Pension Income Splitting (Age 65+): Converting earlier (at or after 65) allows you to split RRIF or LIF income with a spouse/partner, which can reduce your household's overall tax burden.
   • Pension Income Tax Credit (Age 65+): Withdrawals from RRIFs or LIFs after age 65 qualify for the federal pension income tax credit, providing further tax savings.
3. Testing Conversion Ages:
   • The platform evaluates different ages for conversion, weighing the trade-offs between smaller, earlier withdrawals and waiting longer to convert.
   • Early withdrawals can reduce taxable income later in retirement, potentially avoiding higher tax brackets or government benefit clawbacks (e.g., OAS clawbacks).
4. Avoiding Misconceptions:
   • Some individuals delay conversion until age 71, believing the mandatory deadline implies a strategic advantage. The strategy dispels this notion, highlighting how earlier conversion can often lead to better outcomes by leveraging tax credits and splitting options.