If you are going to turn 71 this year, you have some important decisions to make with your RRSP’s.
Your RRSP must be collapsed by December 31st of the year you turn age 71. There are three options available for your RRSP’s:
Note: The law changed in 2007 the age at which you must convert your RRSP from 69 to 71.
- Cash out the entire RRSP and include the entire amount withdrawn in income that may not be the best alternative if the amount of accumulated income in the RRSP is significant.
- You can purchase a fixed term annuity or life annuity to provide for a stead stream of income over your life or your spouse depending on the plan.
- Use the funds in the RRSP to establish a Registered Retirement Income Fund or RRIF.
The RRIF allows you to spread the income you have accumulated in your RRSP between the time you established the RRIF and your death. A RRIF can be established at any time but there is a required minimum annual withdrawal that must be made from the RRIF. The amounts are based on formulas set by regulations. The amount of annual minimum withdrawal is a percentage of the assets in the RRIF and increases annually.
Amounts withdrawn from a RRIF are included in income when withdrawn and the advantage of the RRIF is that you have the flexibility to structure your income stream as you see fit.
Tax Strategies Before Age 71
- If you are over age 65, you are entitled to claim the $2,000 pension income tax credit and it may make sense for you to convert a portion of your RRSP to a RRIF to take advantage of this valuable tax credit.
- If you have turned 71 this year and will have earned income, consider making an over contribution in December (or immediately before you convert to a RRIF). You will be required to pay the 1% penalty tax on the over contribution for only one month.
Want Help Filing Your Taxes?
Dean Paley can help you take advantage of all of the tax credit and deduction available to seniors with professional tax preparation services available in-person, by mail, email, or fax.
Conact Dean by email or call (289) 288-1206.