Some creative RRSP and RRIF ideas for early retirement

Some people look at the RRSP and think it’s not a useful account to utilize for retirement savings because withdrawals (and also RRIF withdrawals when you need to convert RRSP to RRIF) are fully taxed at your marginal tax rate. 

But taxes are a certainty in life; you can’t avoid them, so all you can do is minimize them. Also it should be noted that the ability to compound investments inside an RRSP for decades and defer taxes is extremely beneficial in the long run.   

• The Millennial’s Ultimate RRSP Guide 

In previous posts, I have explained how to convert RRSP to RRIF, if one should overcontribute $2,000 to RRSP, and RRIF utilizing in early retirement. 

In 2025, dividends from our RRSPs accounted for 27% of our $64,838.46 dividend income, or $17,511.89. As we get closer and closer to financial independence and eventually early retirement, I am spending more and more time finding ways to fully maximize the benefits of RRSPs.

This leads to this post – some creative RRSP/RRIF ideas for early retirement.  

The “Controlled Depletion” Strategy

This is one of the strategies we are planning to use, although it may not be the most creative one. The controlled depletion strategy involves deliberately withdrawing and draining our RRSPs while in retirement to minimize mandatory RRIF withdrawals later. (Sometimes called RRSP meltdown.)

Effectively, we plan to make RRSP withdrawals before age 71 so we don’t have a large amount in our RRSP that needs to be converted to a RRIF. We may also consider collapsing our RRSPs completely before age 71 to avoid having to deal with the mandatory RRIF withdrawal amount. Making some controlled withdrawals before 71 can also minimize the mandatory RRIF withdrawal amount later on if we don’t end up collapsing our RRSPs before then.  

Remember, you must convert an RRSP to an RRIF by the calendar year in which the owner turns 71. The first RRIF withdrawal must be done in the following calendar year, with a mandatory withdrawal percentage of 5.28% (for age 71) or 5.4% (for age 72). In other words, if you have a large RRSP/RRIF amount, you are forced to take out a lot of money – whether you need/want it – and may end up in the higher tax bracket. 

With this controlled depletion strategy, we want to withdraw each year just enough to stay in the lowest tax bracket (~$55k per year per person).

Partial RRIF at age 65 for pension splitting

The Canadian government allows for pension income splitting starting at age 65. Each individual may claim up to $2,000 credit from a reported eligible pension. Based on the lowest federal tax bracket of 15%, a $2,000 credit means a saving of $300 per year. 

Since neither Mrs. T nor I have a work pension, we may want to consider converting a small portion of our RRSPs to a RRIF. When we turn 65, we will withdraw $2,000 every year from our RRIFs to take advantage of the pension income tax credit. 

To make this work most effectively, we need to ensure that we are in the lowest tax bracket and limit our pension income to $2,000 or less..

Since the mandatory RRIF withdrawal rate at age 65 is 4%, this means we need to convert $50,000 worth of RRSP to RRIF. Since we need to continue to hold investments inside the RRIFs, it means our RRIFs may increase in dollar amount, forcing us to withdraw more than $2,000 due to the mandatory RRIF withdrawal rate. Therefore, more calculations and simulations are needed as we get closer to age 65 to decide whether it’s worthwhile to deploy this strategy or not.

Avoiding the spousal RRSP attribution rule by converting to a spousal RRIF

A spousal RRSP is a very useful tool to set up if one of the spouses has a higher income. This is the case for Mrs. T and I. In an attempt to make sure our taxable income is roughly the same in early retirement, I set up a spousal RRSP many years ago and have been making RRSP contributions for Mrs. T’s spousal RRSP. 

This allows me to build up Mrs. T’s spousal RRSP while I can use the RRSP deduction to reduce my own taxable income. In retirement, Mrs. T will make withdrawals from her spousal RRSP and I will make withdrawals from my RRSP, effectively splitting our income and reducing our overall taxes. This is more tax efficient than us relying on a large sum of RRSP withdrawals from my account only (i.e. I’d be at a higher tax bracket while Mrs. T would have no income). 

As great as a spousal RRSP is, there is something to watch for – the spousal RRSP attribution rule. 

What is this rule? 

Well, the spousal RRSP attribution rule is a Canadian tax law that prevents income splitting abuse. If you contribute to your spouse’s RRSP, any withdrawals made by them within three calendar years are taxed back to you. 

Per the Government of Canada’s website – “If you want to ensure that you do not have to include any amount in your income when your spouse or common‑law partner withdraws funds from a spousal or common‑law partner RRSP, or spousal or common‑law partner RRIF, make sure you have not contributed to any of your spouse’s or common‑law partner’s RRSPs in the year your spouse or common‑law partner withdraws the funds, or in either of the two preceding years. Otherwise, you (the contributor) will probably have to include in your income the funds your spouse or common‑law partner (the annuitant) withdraws.”

So if I make contributions to Mrs. T’s spousal RRSP this calendar year, that means Mrs. T can’t make any withdrawals until 2029 (i.e. 2026 contribution, withdrawals in 2026, 2027, or 2028 trigger the attribution rule. Withdrawals in 2029 are OK). 

But there’s one method to get around this spousal RRSP attribution rule – by converting the spousal RRSP to a spousal RRIF. This way, the minimum withdrawals required, based on the age of the spousal RRIF holder, are not subject to income attribution. 

Remember, there’s a minimum withdrawal amount required for a RRIF. You can always withdraw more than the minimum amount. Typically, the amount over the minimum withdrawal amount will be subject to a withholding tax. In a spousal RRIF’s case, the amount over the minimum withdrawal amount is attributed to the other spouse (i.e. the higher income contributor, me in this case).

Once you create an RRIF, there’s a minimum withdrawal requirement. The RRIF annual minimum withdrawal amount is determined by the following formula: 

1/(90-age) x RRIF market value

So the RRIF withdrawal percentage at age 45 would be 2.22% and 2.5% at age 50. 

If we want to withdraw $5,000 from Mrs. T’s spousal RRSP each year and avoid the attribution rule, that means we’d need to convert $200,000 from her spousal RRSP into a spousal RRIF at age 50. 

Since the mandatory withdrawal nature of RRIF is somewhat restrictive, converting to a spousal RRIF may not be the most suitable strategy for everyone..

Charitable donations

One way to reduce your tax consequences is to donate your RRSP or RRIF withdrawals directly to charity. Sure, you get taxed on the withdrawal, but you would also receive a donation credit that would offset it. If you donate the appreciated securities from your RRSP/RRIF to a charity in-kind, you get the donation credit on the entire amount of offset the withdrawal. 

Converting to multiple smaller RRIFs

Since the RRIF mandatory withdrawal amount is calculated by multiplying the mandatory withdrawal percentage by the RRIF’s market value, if your RRIF market value is large, you are forced to withdraw a large amount. 

I already mentioned the controlled depletion and spousal RRIF strategies as a way to reduce RRSP/RRIF market value. Another strategy is not to convert the entire RRSP to RRIF right away. Instead, strategically convert the RRSP into multiple smaller RRIFs so you can minimize the RRSP withholding tax and control the minimum withdrawal amount.

For example, if you convert your $400,000 RRSP into RRIF at age 50 with a mandatory withdrawal percentage of 2.5%, this means you must withdraw $10,000. If you convert into 2 RRIFs at $100k each, you only need to withdraw $5,000 from your RRIF. You can supplement the income from either RRSP withdrawals or from TFSAs or non-registered accounts.

A lot of planning and calculations are needed to see which approach is the most tax efficient. 

Summary – Some creative RRSP/RRIF ideas for early retirement

Based on my research, these are some of the creative ways to utilize RRSP and RRIF in early retirement to minimize taxes. Some of these ideas and strategies may not be suitable for everyone, so more calculations and simulations are needed to ensure your RRSP/RRIF withdrawals are as tax-efficient as possible.

Do you have any creative RRSP/RRIF withdrawal ideas for early retirement?