From RRSP… to RRIF
No escape possible, the transformation of the registered retirement savings plan (RRSP) into a registered retirement income fund (RRIF) must be done no later than December 31 of the year in which you reach 71 years of age. At this stage, it will no longer be possible to contribute to your RRSP either, unless you contribute to the RRSP of a younger spouse. “You must start disbursing the following year, but you can, if you wish, disburse the year of the transformation. There is a minimum withdrawal the first year at 5.28% which increases in the following years, but there is no maximum amount for withdrawals”, explains Benoit Côté, financial planner and advisor in group insurance and annuities. for Integral Financial Management. If you forget this step, the amounts will still turn into RRIFs. A trio of experts made up of Jean-Michel Parent, Sébastien Aubin and William St-Sauveur, planners for Planica, point out that investments in a RRIF continue to grow despite everything.
Disburse by age of younger spouse
If you don’t need your RRSP money and want to cash out as little as possible, the government allows cashing out based on the age of a younger spouse. “It can be advantageous, because the minimum payment will then be lower,” says Benoit Côté.
Buy a life annuity
Another option is to purchase a life annuity from an insurance company. This strategy has the advantage of giving you some peace of mind, because every month you will always receive the same amount of money. “The factors that determine the amount of the pension are: age, life expectancy and interest rates. Depending on the amount deposited in the annuity and the interest rate in effect at the time of the deposit, the insurer will determine the amount of the payments taking into account the guarantees chosen,” explains Benoit Côté. The purchase of an annuity should not be taken lightly, however, as this decision is irrevocable. It is for this reason that Benoit Côté recommends never putting 100% of the assets there. Far from being enthusiastic about this option, the trio of experts points out that the low interest rates of recent years have considerably reduced the advantage of life annuities.
Locked-in RRSP (LIRA) – LIF
If you have a locked-in RRSP, you should know that the conversion of the locked-in retirement account (LIRA) into a life income fund (LIF) must also be done no later than December 31 of the year in which you turn 71. You must start disbursing the following year, but you can, if you wish, disburse the year of the conversion. In the case of locked-in accounts, there is a minimum annual payment, but also a maximum payment. For locked-in accounts under provincial jurisdiction, there is the possibility of making a withdrawal in the form of “temporary income” between the ages of 54 and 64. For those under federal jurisdiction, there is the possibility of withdrawing 50% of the amount once only from the age of 55.
Cash in all of your RRSPs
Planica’s trio of experts is adamant that this solution represents a financial disaster. “You managed to raise $400,000, you are going to donate $200,000 to the government. The option can however be considered in the event of a foreseeable death. “There are a lot of variables to take into account, such as family situation, tax situation and emotional situation. If there is a spouse, money can be transferred to him. It’s case by case. »
Steps to take before turning 71
The three Planica experts believe that certain things can be done before you turn 71, including increasing your contributions to maximize your RRSP rights and catching up on unused RRSP rights. “The tax deduction to which you will then be entitled will not necessarily have to be claimed in the year. In fact, you can claim it any time in the future when it is more advantageous for you to reduce your taxable income,” they explain.