What Happens To My RRSP When I Turn 71?

by Tax Guy - Burlington Accountant on February 2, 2010 Print This Post Print This Post

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.

  1. Cash out the entire RRSP and include the entire amount withdrawn in income that may not be the best alternative if the amount of accumulated income in the RRSP is significant.
  2. 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.
  3. 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Amounts withdrawn from a RRIF are included in income when withdrawn and the advantage of the RRIF is that you have the flexibility to structure your income stream as you see fit.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

  1. 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.
  2. 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.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 25 comments }

Irma L March 23, 2010 at 6:56 pm

Say I convert $500,ooo from a RRSP into a RRIF as required at age 7l and die 2 years later what happens to the balance? Is the residual paid to my estate?

Tax Guy March 23, 2010 at 9:19 pm

Hi Irma,
The balance of your RRSP or RRIF is paid to your named beneficiary if one is named, otherwise it pays to your estate and distributed according to the terms of your Will. If you have a spouse, they can make an election to take over your RRSP or RRIF tax deferred.

E J Ans August 10, 2010 at 6:51 am

At 71, can I collapse/transfer my RRSP fully and in kind
to an existing (not a new one) RRIF (same institution) ??
What forms are needed (T2200 ?) ??

i.e I want to have just one RRIF, not two

thankyou

Tax Guy August 10, 2010 at 7:45 pm

Hi there,
You just ask your financial institution to move your RRSPs into a single RRIF. Thry handle it all.

J.F. William B December 12, 2010 at 12:40 am

I have about $ 550,000. in rsp a/c and am 71 this year. Can I convert to RRIF and hold stocks in the rrif and continue to buy/sell stock on the markets.Thanks for your dvice, William

Tax Guy December 13, 2010 at 10:29 am

You can continue to hold the same investments in your RRIF. Your brokerage firm will simply move the investments to the new account. You can also take your required RRIF payments “in-kind”: That is, move the investment from the RRIF to a non-registered type of account.

Rick January 19, 2011 at 4:53 pm

When I die, and my estate goes to my 2 daughters, will the non
registered money be subjected to tax?

Tax Guy January 19, 2011 at 11:56 pm

Your non-registered assets will be considered sold at fair market value. Any gains and losses are taxable.

Paul D February 12, 2011 at 5:50 am

I have a number of RRSP’S.Do I have to deregister or cash them all in at age 71…Thank you…..Paul

Tax Guy February 13, 2011 at 7:54 am

Paul,
You have three options on December 31, 2011. Convert them to a RRIF or RIFF’s or purchase a registered annuity. These two options will allow you to defer the tax on the plan but you will be required to take regular taxable payments from the plan.

The other option is to cash in the RRSP’s and pay tax on the full amount now.

Note that you can do any combination of these three options to suit your needs. Also, note that you can move your existing RRSP’s to a single RRSP.

Anne k February 26, 2011 at 12:16 am

I turn 71 in oct of 2012. I still receive about 40,000 a year in dividend income and also have rrsp savings. Can u suggest a strategy for me.
Thank u

Tax Guy February 27, 2011 at 12:39 pm

I cannot suggest strategies or give advice. However, if you do not need the income, you should wait unit the last minute to convert to a RRIF and then take your RRIF payment at the end of 2012! This will ensure you keep the money in the tax-deferred status for another year.

Also, depending on the size of the RRIF, the annual payments may put you close to the OAS clawback of $66,000. Take a look at the OAS page.

Harjit Deol March 20, 2011 at 12:31 pm

I want to know more about rrsp options wich one is best for me .

Theresa August 15, 2012 at 10:38 pm

I turned 71 this year. Can I still make a contribution to my RRSP for the year 2013. I do not need the income from a RRIF as I still will continue to work and earn an income. What should I do at the end of the year when I have to convert my RRSP’s of approximately $550,000 to get the best tax advantage and should the money be invested in guaranteed investments at that time?

Burlington Accountant August 16, 2012 at 5:03 pm

Hi Theresa,

Great question and one that I’m sure many others want to understand as well.

Since you are 71, you can only make an RRSP until December 31st of this year (2012). You will not be able to make a contribution in 2013 because you cannot have an RRSP.

If you will have earned income this year, you can over contribute to your RRSP in December. You will pay the penalty tax of 1% for one month only. In January, your new RRSP limit will cover the over contribution.

However, as of December 31st you are required to convert your RRSP to a RRIF and I would say that you wait until the end of the year. Although you no not need the income, it will be added to you as of 2013. You could put any excess into a TFSA.

In terms of investments, you can keep what you are comfortable with. It’s difficult for me to comment on suitability without knowing your complete picture. You may want to fund an investment advisor or use my financial planning services.

moh September 23, 2012 at 1:44 pm

Person is 76 years old but has not done anything with the rrsp when he turned 71. He had a registered home loan and is currently repaying the balance by installments. Next year will be his last year for repayment What can he do?

Tax Guy September 25, 2012 at 8:53 pm

The RRSP cannot be allowed to continue past age 71. The plan administrator must terminate the RRSP.

The Home Buyers Plan annual repayments would likely have to be included in income because an RRSP cannot be held after age 71.

kate September 30, 2012 at 11:16 pm

I’m a US resident and i still have my RRSp in Canada. I’m 56 years old , what is the best time for me to withdraw the whole or patial amount? Thank you

kate September 30, 2012 at 11:19 pm

Hi, I’m 56 years old and i’m a US resident. I still have my RRSP in Canada. When is the best time for me to cash out the whole or partial amount with the least tax?
Thank you

Ken Johnson December 11, 2012 at 11:29 am

I am hoping you can help me out , one of our employees has turned 74 years old and he is still working full time with us , we realize he cannot contribute to RRSP accounts any longer . Is there a form that he must fill out in order to have his RRSP contributions left on his earnings pay cheque . Where we work we have contractor RRSP contributions and employee RRSP contributions .

Tax Guy - Burlington Accountant December 12, 2012 at 10:55 am

Ken,

Since the employee does not qualify for an RRSP, you simply add the amount you would have contributed to the RRSP to is regular pay cheque. If it’s an annual lump-sum, you would calculate and pay it as a bonus.

Terry May 30, 2013 at 12:53 am

With regards to a spousal RRSP in Quebec, if the recipient dies, can the RRSP be rolled over to the contributor (spouse) without tax implications? This is a situation where there was no will. Thanks.

Tax Guy - Burlington Accountant June 20, 2013 at 6:31 am

The RRSP will transfer to the spouse regardless of the type of RRSP.

Shirl August 15, 2013 at 1:45 pm

My father is 85, we were wanting to know if he could cash in his RRIF now and how much of a tax penalty would he have to pay on 60,000.00.?

Tax Guy - Burlington Accountant September 17, 2013 at 9:58 am

Hard to say without knowing the other income he would have. As a general rule, you’re best to leave it in the RRIF as long as possible.

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