RRIF Conversion and Minimum Withdrawals for Cross-Border Filers: The 71 Deadline, the Periodic Limit, and the 15% Rate

An RRSP has an expiry date: by December 31 of the year the annuitant turns 71, it must be converted to a RRIF, used to buy an annuity, or withdrawn in full. The RRSP then requires minimum annual withdrawals that rise with age. For a Canadian resident, the withdrawals are ordinary income on the T1. For a US resident, they are Canadian-source pension income subject to Part XIII withholding at 25%, reduced to 15% under the treaty for periodic payments that stay within a limit, and taxable in the US with a foreign tax credit. The conversion itself is not a taxable event in either country, and the treaty deferral carries over from the RRSP to the RRIF.

Key takeaways

• Conversion deadline: December 31 of the year the annuitant turns 71. No tax on the conversion in Canada or the US; the RRIF is a continuation of the RRSP for treaty purposes.
• Minimum withdrawals: required from the year after conversion, based on a percentage of the year-opening value that rises with age (about 5.28% at 71, 5.40% at 72, up to 20% at 95 and older); a younger spouse's age can be used to reduce the minimum.
• Canadian resident: withdrawals are income on the T1; withholding applies only on amounts above the minimum; eligible for pension income splitting at 65.
• US resident: Part XIII withholding at 25%, reduced to 15% under Article XVIII for periodic payments that do not exceed the greater of twice the minimum and 10% of the year-opening value; withdrawals above that limit are taxed at 25%. NR301 on file with the issuer. No Canadian return; the withholding is final.
• US taxation: the withdrawal is pension income on the 1040; the taxable amount is the full withdrawal less any US basis (contributions made while a US person that were not deductible); the Canadian withholding is a foreign tax credit on Form 1116. State treatment varies (California taxed the growth annually; most states follow federal).
• Section 217 election: a non-resident whose Canadian-source income is substantially all of their income can elect to file a Canadian return on the RRIF income at graduated rates instead of the flat withholding; useful for low-income retirees.

The conversion

An RRSP annuitant must, by the end of the year they turn 71, transfer the RRSP to a RRIF (the usual choice), purchase an annuity, or withdraw the balance (fully taxable). A RRIF can be opened earlier; withdrawals then begin the following year. Conversion is a transfer between registered plans, not a disposition: no Canadian tax, no US tax, and the treaty deferral under Article XVIII and Revenue Procedure 2014-55 continues for the RRIF as it did for the RRSP. A US-resident annuitant should confirm the Canadian institution will administer a RRIF for a non-resident (most will, with trading restrictions) and provide an NR301 before the first payment.

The minimum

The minimum withdrawal for a year is the year-opening fair market value multiplied by the prescribed factor for the annuitant's age at January 1 (or the spouse's age if elected at the outset). The factors: 1/(90 − age) below 71, then a prescribed table from 71 (5.28%) rising to 20% at 95. No withholding applies to the minimum for a Canadian resident; withholding applies to the excess.

The periodic limit for US residents

Article XVIII(2) caps Canadian tax on periodic pension payments to a US resident at 15%. The treaty defines a RRIF payment as periodic if the total payments in the year do not exceed the greater of twice the minimum amount and 10% of the year-opening fair market value. Withdrawals within the limit are withheld at 15%; withdrawals above it are withheld at 25% on the excess. A US-resident annuitant who wants more than the limit in a year takes the excess at the higher rate, or spreads the withdrawals over two years.

The 15% or 25% is Canada's final tax; no Canadian return is filed on the RRIF income unless the section 217 election is made.

The US return

The withdrawal is reported as pension income on Form 1040 (line 5a gross, 5b taxable). The taxable portion is the withdrawal less the annuitant's US basis in the plan, recovered pro rata; basis exists to the extent the annuitant made contributions while a US person that were not deductible in the US (contributions made while a Canadian resident and non-US person have no US basis, so most Canadian movers have none). The Canadian withholding is a foreign tax credit on Form 1116 in the passive basket (the IRS treats RRIF income as foreign-source passive income for most annuitants). At US rates on the withdrawal, the 15% credit is usually fully usable; a low-income retiree in the 10% or 12% bracket may have excess credit.

State treatment: most states start from federal AGI and tax the withdrawal as pension income, some with a retirement income exclusion (Pennsylvania, Illinois, Georgia, and others exempt most of it); California taxed the RRIF's growth annually and gives basis for what it taxed; no-tax states add nothing.

The section 217 election

A non-resident whose Canadian-source pension and RRIF income is 90% or more of their worldwide income can elect under section 217 to file a Canadian return reporting that income at graduated rates with the personal credits, instead of accepting the flat withholding. For a US-resident retiree with modest income, graduated rates can be lower than 15%; the election is made on a return filed by June 30. The Canadian tax under the election is then the foreign tax credit on the US side.

Spousal rollovers and death

On the annuitant's death, a RRIF can roll to a surviving spouse tax-deferred in Canada; the treaty deferral continues for a US-resident surviving spouse. The spousal rollover defers the Canadian tax; without a spouse, the full value is income on the deceased's final Canadian return (for a non-resident, Part XIII withholding at 25% on the amount paid to the estate or beneficiaries) and, for a US-person beneficiary, income in respect of a decedent taxable in the US with a credit.

Worked example

A Toronto retiree who moved to Naples at 68 has a $800,000 RRSP at 71 and converts it to a RRIF in December of the year she turns 71.

• Conversion. No tax in either country; NR301 filed with the issuer.
• Age 72. Minimum 5.40% of $800,000: $43,200. Periodic limit: the greater of $86,400 (twice the minimum) and $80,000 (10%): $86,400. She withdraws $60,000: within the limit; 15% withholding, $9,000.
• US. $60,000 (converted) as pension income; taxable in full (no US basis); federal tax roughly $9,000 at her rate; the $9,000 Canadian withholding is a full credit; no Florida tax.
• Age 75, larger need. She withdraws $120,000 in a year when the limit is about $95,000: $95,000 at 15% and $25,000 at 25%. Alternative: $95,000 this year and the rest next year, all at 15%.

Official sources

"The minimum amount must be paid to you in the year following the year the RRIF is entered into." — Canada Revenue Agency, Registered Retirement Income Fund (RRIF), https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-retirement-income-fund-rrif.html

"The usual Part XIII tax rate is 25% unless a tax treaty between Canada and your home country reduces the rate." — Canada Revenue Agency, Non-residents of Canada, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/non-residents-canada.html

"pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment." — Canada-United States Tax Convention, Article XVIII(2)(a), https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

"Eligible individuals" are "treated as having made the election" in the first year in which the individual would have been entitled to elect the benefits under Article XVIII(7) with respect to the plan, without filing Form 8891. — Internal Revenue Service, Revenue Procedure 2014-55, https://www.irs.gov/pub/irs-drop/rp-14-55.pdf

Practitioner note

The RRIF file for a US resident has two numbers that matter: the NR301 on file before the first payment, and the periodic limit for the year. Clients who take a large withdrawal in one year pay 25% on the excess when spreading it over two years would have cost 15%. We compute the limit each January and plan the withdrawals around it.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the RRIF conversion and NR301 filing, the annual withdrawal plan against the periodic limit, and the US return reporting the withdrawals with the foreign tax credit. See cross-border pricing or book a call.