‘RRSP for life’ Is a Death Rule Dressed as a Birthday Rule

When a Canadian dies holding a $600,000 RRSP and leaves no spouse or financially dependent child, the Canada Revenue Agency treats the holder as having received the whole $600,000 the day before death. The full amount goes onto the final tax return, where it is taxed in a single year at the highest brackets, leaving a bill on the order of $300,000 on money the holder never spent. Budget 2026, tabled on Thursday under the title Masters of Our Destiny, proposes to end the forced conversion of RRSPs into RRIFs at 71 and call the result an “RRSP for life”, and its draft law keeps that death rule exactly where it is.

The change in the headlines is the end of a birthday rule. Canadians must now turn an RRSP into a RRIF, or buy an annuity, or cash out, by December 31 of the year they turn 71. Budget 2026 would erase that deadline and let the RRSP carry on past 71, with minimum withdrawals starting at 72. The minimums follow the same schedule the RRIF uses today: 5.40 percent of the balance at 72, so $32,400 a year on a $600,000 account, rising every year after that. Contributions still stop after 71, as the finance minister’s press secretary confirmed to CBC News, and the draft law says the same thing in plainer language: no premium may be paid in any year after the holder turns 71. The conversion was never where the money was.

The budget asks two questions, and both of them are about death. The first is whether the RRSP rules could include a successor holder, a spouse or common-law partner who takes over the account when the holder dies, so the RRSP stays open until the successor holder’s death and the value is kept out of the deceased’s income. The second is whether the current indirect rollover on death, an income inclusion paired with an offsetting deduction for a qualifying survivor, could be replaced with rules allowing direct tax-free transfers to the registered accounts of qualifying survivors. The budget invites written representations on the proposal by January 8, 2027. The budget also notes that merging the two sets of rules could require changes to the federal Pension Benefits Standards Regulations, 1985 and matching provincial laws, because pension money moved out of a plan is generally locked in until retirement.

The draft law tabled with the budget goes further than the questions suggest. Under it, the spouse or common-law partner designated under the RRSP becomes the holder after the holder’s death. A minimum withdrawal formula is written into the RRSP, nil in every year before the holder turns 72 and then the balance multiplied by the prescribed factor, the same factor table the RRIF uses. The two-step rollover gives way to a deemed transfer that is never included in anyone’s income, with a deemed distribution rule for payments made through an estate. The death tax stays for the end of the line: if the last holder dies, the holder is deemed to have received, immediately before death, an amount equal to the fair market value of all the property in the plan.

Every clause of the draft is written, and the section ends without saying when any of it would take effect. The RRSP section of the ways-and-means motion runs for pages and carries no application clause. The measures around it all do: the instalment changes apply to the 2028 and later taxation years, the pension-plan revocation rules come into force on January 1, 2027, and the objection changes apply to assessments sent three months after royal assent. The tax firm Thor, which read the motion the day it was tabled, put it plainly: the motion includes draft provisions for the merger and both features, but proposes no effective date.

At 72, the factor is 5.40 percent, so the minimum on a $600,000 balance is $32,400 for the year. If the holder had elected, before any payment under the plan, to use a 65-year-old spouse’s age instead, the factor would be 4.00 percent and the minimum $24,000, a difference of $8,400 every year for as long as the spouse’s age governs the calculation. The draft law keeps the election, and the budget is silent on it.

Money taken out of an RRSP in a lump sum is withheld at source: 10 percent up to $5,000, 20 percent to $15,000, and 30 percent above that. On the $32,400 minimum, taken in one lump sum, the holdback is $9,720, a prepayment that is settled at filing. A RRIF minimum arrives whole, because no tax is withheld at source on the minimum amount itself. Whether the RRSP minimum under the new law would be withheld like a lump sum or paid whole like a RRIF minimum is a question the draft leaves open, and the budget’s consultation questions do not ask it.

A couple can split up to half of a RRIF’s income between two returns, and claim a federal credit on up to $2,000 of it. The $2,000 credit and the 50 percent split both require eligible pension income, and an RRSP lump sum is not on the CRA’s list. The draft law gives RRSP withdrawals no new status: its minimum is a payment from an RRSP, not a payment from a RRIF.

The 71 line has been moved before. The RRSP dates to 1957, and the RRIF arrived in 1978, created because the government wanted the tax it had deferred to come back, a separate account for drawing the money down. In 2007 the maturity age rose from 69 to 71, two more years of deferral. Budget 2026 is the first attempt to erase the line altogether, and the account it would erase the line for is 48 years old.

In the budget’s revenue table, the RRSP row reads ‘-‘ in every year to 2030-31, the symbol the budget uses for nil. The deficit for the year is $62.3 billion. Against that, the RRSP measure is nil. The draft is equally silent on the RRSPs already converted to RRIFs: there is no path back, and no word on whether the new rules would reach them. A Reddit user put the question the budget leaves open: “Will it be retroactive?” Another answered with a question of his own: “How would that work? You want to reconvert your RRIF in an RRSP?”

Kombatnt, posting in r/PersonalFinanceCanada on November 6, wrote that the only difference he could see was the successor holder: the account “will transfer to the surviving spouse and can remain invested, rather than needing to be liquidated and paid out.” Angeline4PFC, in the same thread, wrote that “I don’t see any advantages as written except for the administrative aspect,” and added the pension point the budget never raises: “You will not benefit from the pension income credit (at least that wasn’t mentioned).” Her last line was the practical one: “for now, I’ll stick with my RIF.” ImperialPotentate, in r/CanadianInvestor, wrote from the other side of the successor-holder rule: “I have no spouse nor heirs (and at this stage never will) so I don’t care about my estate leaving a big tax bill after I croak.” For him the money stays inside the RRSP, “not taxed in my lifetime.” And specialk554, in the same forum, read the proposal the way the budget’s own table reads: “the requirement to convert to a RRIF is gone but the rules all still remain… I don’t think that changed.”

Jamie Golombek of CIBC told CBC News the government is saying, in effect, why not have an RRSP “that you basically have until the day you die.” Aaron Hector, a senior wealth adviser in Calgary, praised the simpler transfer after death. Li Zhang of CPA Canada called the proposal “more of a nomenclature change.” She noted that only 33 to 37 percent of Canadians have access to a pension at all, and that the mandatory withdrawals “trigger higher levels of taxation.” The finance minister’s office confirmed the one hard edge: no contributions after 71.

Written representations on the proposal go to RRSP-consultation-REER@fin.gc.ca. The budget names that address as the place for the public to answer its two questions.