How can John, who must convert his RRSP to a RRIF at 71, reduce taxes if he keeps working?

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Q. When I turned 71 years of age, I discovered that the Canadian government required me to transfer all my registered retirement savings plan (RRSP) funds into a registered retirement income fund (RRIF) — or annuity or lump sum — and then gradually withdraw money from it, which would be taxed. And I could no longer contribute to it.

I have been in full-time employment and have no intention of retiring in the near future. So, the sizable amount of money I must withdraw each year is taxed at a very high rate, contrary to the spirit of the purpose of an RRSP. I would prefer to continue contributing to it and not withdraw from it. Only my age disallows that. It is infuriating to see much of it gradually dwindle away in tax.

I feel this is government-imposed discrimination based solely on age, and therefore contrary to Section 15 of the Canadian Charter of Rights and Freedoms .

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I am sure this must come up very often, especially now that people want to work longer and are able to. Is there any vehicle or recourse which can protect these funds until I really do retire, or defer such heavy taxation of them? —Cheers, John

FP Answers: Hi John. I hear you but those are the rules. Some time in the year you turn 71 you must convert your RRSP to a RRIF, purchase an annuity or withdraw your funds. Money drawn from your RRIF is taxable and added to your other taxable income and taxed accordingly. I am only going to answer the financial side of your question because I am not a lawyer.

You are not alone in your thinking, John. The Canadian Association of Retired Persons (CARP), the C.D. Howe Institute and other industry groups have argued for changes to RRIFs. Just to summarize, they have suggested pushing the RRIF conversion date to age 75 and reducing the minimum withdrawal requirement, or eliminating it all together.

There have been changes to the RRIF rules in the past. Pre-1992 RRIFs had to be depleted by age 90. In 1996 the RRIF conversion age went from age 71 to 69 then back to age 71 in 2007 and in 2015 the withdrawal factors were reduced by 30 per cent. So, there is hope for change, John, but probably not in time for you, so let’s look at some options.