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The next step for your RRSP is….

You’re turning 71 by the end of 2018 and now you have some important decisions to make regarding your Registered Retirement Savings Plan (RRSP).  What are the best options for you to preserve your retirement income and your estate?

You established your RRSP and contributed to it for many years.  Great job – an RRSP is the best tax savings, income building choice for most Canadians and it is an important part of your retirement income.  But did you know that if you turn 71 this year you are required, by law, to wind down your RRSP before 2019?

There are 3 basic conversion options available to choose from:

Cash out your plan:  Not a good choice as you will likely be taxed on the whole amount right away at a high marginal tax rate.

Establish a Registered Retirement Income Fund (RRIF):  RRIF’s are very similar to RRSP’s with two exceptions – 1) No contributions are permitted once a RRIF is established and 2) you are required to withdraw a minimum amount each year.  The mandatory RRIF minimum for a 71 year old is 5.28% and increases as you get older.  There is no maximum you can withdraw but you should keep in mind withholding taxes and the applicable thresholds.  If you don’t need the withdrawn funds you could contribute these payouts to your Tax Free Savings Account (TFSA) or a Non Registered investment.

Purchase an Annuity:  There are a few different types of annuities, here are 3 common options:

  • A “life annuity” – pays a specified income, usually monthly, for the rest of your life
  • A “term certain annuity” – guarantees income for a certain time frame for example until you turn 90
  • A “joint last to die” will continue payments to your spouse after your death until they pass away.  With this option your monthly payments will be reduced as the benefit is paying for two lives.  You can opt to have the same amount paid to the surviving spouse or it can decrease.  All these options will have an impact on the monthly income amount you receive.

The right RRSP conversion option is as individual as you and depends on your unique situation.  Speak to your Certified Financial Planner who will be able to review the options with you before you take the next step.

This column is written by Michelle Weisheit CFP, IG Wealth Management and presents general information only and is not a solicitation to buy or sell any investments.  Please contact your own advisor for specific advice about your situation.