Important decisions when you turn 69
 When
you turn 69, the government has decided that your financial
life should switch from the wealth accumulation stage to the
wealth distribution stage.
So, by December 31st of the year you turn 69, the rules say
you have to terminate your RRSPs. And you have three options
as to what you can do with your savings:
1. You can just take the money you’ve accumulated in
one lump sum. Of course, you’ll have to pay tax on that
lump sum income, which rather defeats the purpose of having
the RRSP in the first place. Unless your RRSP is extremely
small, this is generally not a good option.
2. Your second option is to convert your RRSP into a RIF,
a Registered Retirement Income Fund. And that’s easy
to do. It’s simply a transfer of the assets you had
in your RRSP to your RIF, where they will continue to grow
tax-deferred.
In a sense, your new RIF is an extension of your old RRSP.
You’ll have the same flexibility in managing your assets
– you can have a self-directed RIF – and as with
the RRSP, when you take money or assets out, you’ll
be taxed at your current rate. You can also have more than
one RIF.
The difference is that the RRSP was designed for saving while
the RIF is for providing an income. In fact, you are required
to take out a certain minimum amount from your RIF each year.
The rules that apply to self-directed RRIFs are generally
the same as those for RRSPs with one major exception:
In general, a RIF can only hold assets that are transferred
from existing registered savings or pension plans. As stated
above, a RIF is simply a transfer of assets. Although it would
be nice to take advantage of the tax-deferred growth in the
RIF, you can’t simply buy investments and register them
in your RIF.
3. Your third option is to use the funds in your RRSP to
purchase an annuity. This strategy is discussed in the section,
One form
of income you can count on.
Special tips for your 69th year
-
Be sure to top up your RRSP. Make your final year's RRSP
contribution as large as the rules will allow. And remember,
you don’t have until March. You have to make your
contribution by December 31st.
-
If you have earned income in the year you turn 69, you
may want to overcontribute to your plan in December before
you wind it down. The amount would be whatever you’re
entitled to contribute based on your earned income in
that year. You would have to pay a 1% penalty for the
month of December on the overcontribution but the tax
savings would far exceed that.
-
Remember that this is your last chance to make up any
unused contributions from previous years.
-
If your spouse is not yet 69, you can keep on contributing
to your spouse’s RRSPs until they turn 69 if they
have RRSP contribution room.
-
If you like, you can delay withdrawing from your RIF
until the end of the calendar year after it was set up.
Which means all the more time for you to benefit from
tax-deferred growth.
Important Note: The world of
RRSPs and RIFs and all the other government-sanctioned tax
shelters can offer significant financial advantages and benefits.
But to take full advantage and receive what you are entitled
to requires knowledge of the rules and regulations and how
they apply to your own individual situation. In short, this
is an area in which it is generally wise to seek professional
help.
Please note: Because the rules
on RRSPs and other registered investments are complex and
subject to change, you should always seek professional advice
so you can be sure you are taking maximum advantage for your
situation.
Important information about our financial planning services can be found at the bottom of our
homepage.
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