Your 71st birthday is fast approaching, and the time has come to think about converting those RRSPs. Here are some strategies for your RRSPs and retirement.
December 31 of the year you turn 71 is the last day you can contribute to your RRSPs.
There are 5 options available to you after this date:
- Withdraw all your RRSPs
- Contribute to a spousal RRSP (if your partner is younger than 71)
- Transfer your RRSPs to a RRIF
- Use the funds to purchase an annuity
- Combine a RRIF and an annuity
If you withdraw all your RRSPs
Funds that have accumulated in your RRSPs are not taxed until you withdraw them.
They are regarded as income as soon as you make the withdrawal. You will therefore have to pay income tax on your next tax return.
If you opt for a spousal RRSP
You reduce your taxable income and split income at retirement when you contribute to the spousal RRSP of a partner under age 71. Consider that two $30,000 incomes are taxed at a lower rate than one single $60,000 income.
Remember to stay within your available contribution room so you do not exceed your maximum RRSP deduction limit.
Amounts you invest in a spousal RRSP belong to your partner. So this means they will be on the hook to pay the tax when the funds are withdrawn.
If you transfer your RRSPs into a RRIF
A RRIF is the easiest and most flexible way to transfer your RRSPs and earn a retirement income.
Various options are available when you make a withdrawal from your RRIF:
- Minimum income
- Fixed income
- Leveled income spread over a selected period of time
You will have to pay tax every time you withdraw funds from your RRIF.
If you purchase an annuity
An annuity is the best bet for investors who hate unpleasant surprises.
You buy an annuity from an insurance company. In exchange, it pays you a fixed retirement income. It never fluctuates due to market volatility and is guaranteed.
However, you cannot modify the terms of the contract between you and the insurance company. Some people find an annuity lacks the flexibility to deal with life’s unexpected financial hiccups.
If you choose a RRIF and an annuity
You will have the best of both worlds if you combine a RRIF and an annuity. While an annuity protects you from fluctuations in financial markets and offers a sense of financial security during retirement, a RRIF provides flexibility to withdraw money when you need it the most, while providing the advantages of market growth.
Your advisor has a strategy just for you
Regardless of what you plan to do with your RRSPs, it’s a good idea to talk it through with a financial advisor and develop a strategy.
The advisor will guide you to the best retirement solution for you that meets all your expectations and ensures that all those years of contributing to an RRSP pay off.
Note : This blog post is provided for information purposes only. It is not a substitute for professional legal, financial or fiscal advice. For advice specific to your personal situation, always speak with your advisor. SSQ Insurance cannot be held responsible for any decision made as a result of reading this blog post.