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Before making a major financial decision you
should consult a qualified professional.
Funds in RRSPs are required to be withdrawn (subject to
tax) or converted
to a RRIF (tax-free) by the end of the year in which the taxpayer turns 71.
Because withdrawals from a RRIF are
eligible for the pension income tax credit for taxpayers over 65, it may be useful to
convert at least a portion of RRSPs to a RRIF in the year in
which the taxpayer turns 65. The amount converted
should be sufficient to allow withdrawals of at least $2,000
per year for 7 years (age 65 to 71 inclusive), until all
RRSPs must be converted to RRIFs. If there is a
spouse, twice as much could be converted to take advantage
of the pension
splitting available. The spouse might also be able to take advantage
of the pension tax credit, depending on
his/her age.
Keep in mind that
administration fees may be charged on a RRIF with a low
balance.
Tax Tip: Ask your
advisor about converting a
portion of RRSPs into RRIFs at age 65 to take advantage of
the pension income tax credit and pension splitting.
Purchase an Annuity with
RRSP Funds
With interest rates fairly high in 2023, annuities may be worth a review.
Annuity payments from an RRSP qualify for the pension
income tax credit for taxpayers 65 and over. An annuity will usually provide a
lower rate of return than investments in securities in a
self-directed RRSP, so a comparison should be done to
determine which method provides the best after-tax return.
See Canada Revenue Agency Receiving
income from an RRSP, which includes information on using RRSP funds to
purchase an annuity.
Tax Tip: Compare your
options carefully to get the best after-tax return.
TaxTips.ca Resources
RRIF calculator
for calculating minimum withdrawals, fixed annual withdrawals adjusted for
inflation, or withdrawals using a fixed number of years.
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