Mr. Lee, aged 62, has recently retired and holds a substantial amount in his RRSP. He expects his income in retirement to be lower than his income during his working years. His financial advisor recommends converting a portion of his RRSP to a RRIF soon. What is the primary tax-related advantage of this recommendation?

Question: Mr. Lee, aged 62, has recently retired and holds a substantial amount in his RRSP. He expects his income in retirement to be lower than his income during his working years. His financial advisor recommends converting a portion of his RRSP to a RRIF soon. What is the primary tax-related advantage of this recommendation?

Answer options:

• It allows for tax-free withdrawals, similar to a TFSA.
• It defers the mandatory withdrawal age, providing more flexibility.
• It facilitates income splitting with a spouse, potentially reducing the household's overall tax burden. ✅ It enables him to start drawing income while potentially being in a lower tax bracket, optimizing his immediate tax situation.

Correct answer: It enables him to start drawing income while potentially being in a lower tax bracket, optimizing his immediate tax situation.

Explanation: Converting an RRSP to a RRIF allows Mr. Lee to start withdrawing income, which is fully taxable. By doing so during a period of lower income in retirement, he can draw at potentially lower tax rates than if he waited until later when mandatory withdrawals might force him into a higher bracket, or if he had withdrawn from the RRSP during his high-income working years.