RRSP Maturity Strategies: You are allowed to contribute to your RRSP up until December 31 of the year that you turn 71, at which point your RRSP must be closed. Instead, you can select any or a combination of:
- transferring your RRSP holdings into the Registered Retirement Income Fund (RRIF)
- take your RRSP funds in cash payment and pay tax on the full amount or
- purchase an annuity.
Your financial institution can guide you. When nearing age 71, your financial institution generally contacts you to warn you it’s time to begin the transfer. They will offer you advice and do the necessary transactions. Transferring the funds to the RRIF by the deadline is essential, or all of it will be considered taxable income in the same year.
Funds that transfer to the RRIF: Your RRIF is created when property is transferred to your RRIF from one or more of these registered vehicles:
- an RRSP,
- a Pooled Register Pension Plan (PRPP),
- a (Registered pension Plan) RPP,
- a (Specified Pension Plan) SPP,
- from a First Home Savings Account (FHSA) or
- from another RRIF
RRIFs are designed to provide regular retirement payments to you each year. RRIF rules establish a minimum amount you must withdraw annually, increasing per annum as you age, but there’s no maximum. This gives you a cash flow for retirement with the option to increase your annual withdrawal amount, offering protection from inflation to keep pace with growing living costs.
Tax Note: Talk to your advisor to avoid OAS clawback. Old Age Security is reduced for people with high income through a clawback/recovery provision.
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- The 2024 clawback: This applies if your net income exceeds $90,997. For every $1 of net income above $90,997, the maximum OAS pension is reduced by 15 cents. The maximum OAS pension as of January 2024 is $8,560.
- The 2025 clawback: The upper threshold for those aged 75 and over is $157,490. If a 65-year-old applicant for OAS in 2025 has an income of $100,000, a clawback of 15% of the difference between $100,000 and the threshold limit of $93,454 would apply ($100,000-$93,454) x 15% = $981.90 annual clawback.
If you have a self-directed RRSP, you can transfer the assets intact into a self-directed RRIF. You can hold the same qualified investments in your RRIF as in your RRSP, and the tax benefits of the RRSP continue while using the RRIF. You don’t pay tax on that money (as well as any investment profits that accrue) until you withdraw it.
Canadian investors can invest up to 100% of their retirement plans in foreign securities. Investment managers can continue seeking the best investments, allowing greater diversity.
RRSP to RRIF: In the years when you contribute money into your RRSP, you can claim the RRSP contributions as an income tax deduction, lowering your total taxable income. The advantage is that you save on taxes during your working life. All contributions within your RRSP continue to grow on a tax-sheltered basis. During retirement, any withdrawals from your RRSPs or RRIFs are fully taxable as income. RRIF payments are intended to be a gradual, long-term withdrawal strategy to establish your payments to be paid monthly, quarterly, or once or twice a year. RRIFs must also have a cash component aside from investments to withdraw your retirement income payments as scheduled.
You can change the frequency and the amount at any time. Note: Talk to your advisor about your minimum RRIF income (the table is available on the Canada Revenue Agency Website).
You can use your spouse’s age to your advantage. RRIFs require an annual minimum withdrawal and this minimum is usually calculated based on your age. However, if your eligible spouse is younger than you, you can use their age when you open the RRIF instead of your age for the purposes of calculating your annual minimum. Once you have selected your preference to use the spousal strategy, it is an irrevocable decision, even in the event of death or divorce.
Note: You must transfer a Locked-in Retirement Account (LIRA) to a Life Income Fund (LIF) in the same timeframe as the RRSP needs to be transferred to the RRIF. Talk to your advisor if you have questions about tax withholding regarding your RRIF or LIRA payments.