RRSP Maturity Options

By law, you have to collapse your Registered Retirement Savings Plan by the end of the calendar year in which you celebrate your 71st birthday. As a rule, when you take money from your RRSP it’s taxable.

Basically, when you collapse your RRSP you have three options: 1. Take the entire amount in cash. Of course, it will all be subject to tax so that may not be the wisest course of action. 2. You can purchase a Single Payment Immediate Annuity (SPIA) and begin receiving a regular income. Remember this income is still subject to tax. 3. You can roll over your RRSP into a Registered Retirement Income Fund (RRIF), which can be composed of different investment types. You must draw at least a minimum amount of income from your RRIF every year, and any income withdrawn is subject to tax.

Single Premium Immediate Annuity (SPIA)

Many people decide to purchase a SPIA when collapsing their RRSP. They have the security of knowing exactly how much money to expect, and when to expect it to be paid. It’s like your own private pension. The income from your SPIA is determined by a formula that includes your age, gender, the term of the annuity, the frequency of the income payments and the size of the single premium lump sum you use to purchase the annuity. This can all be clarified during a conversation with your Foresters representative.

Registered Retirement Income Fund (RRIF)

Other people "roll over" their RRSPs into RRIFs because the accumulated amount and the income subsequently earned within the RRIF continue to be tax-deferred. Starting in the year after the year you establish a RRIF, you have to be paid a yearly minimum amount.The minimum varies each year and is determined by your age. You have to pay tax on the amount you receive each year. Buying a RRIF gives you flexibility in making decisions regarding income in your retirement. Once you buy an annuity, you’re locking in your income. In contrast, with the help of a representative you can determine the appropriate investments for your RRIF. Upon your death, the full amount of your RRIF is paid to your chosen beneficiary or your estate and is considered your income in the year of your death. If your spouse is the beneficiary, he or she has several options including continuing to receive payments from your RRIF or “rolling over” your RRIF into theirs on a tax-deferred basis. Foresters offers RRIFs with a variety of guaranteed interest accounts.

Advantages and Disadvantages

1. If you choose to receive your RRSP in cash when you turn 71, you will probably get the least amount of value because you must immediately pay income tax on the amount you withdraw. 2. With the SPIA option, you probably won’t outlive your income (which is a common concern among retired people). On the other hand, your income is fixed forever and not under your control. 3. With the RRIF option, you can have control over the investment choices and the amount of income you draw out, but you may not have certainty about whether your RRIF will last as long as you do. What’s right for you? That’s why you need to talk with a Foresters independent insurance representative¹, a financial professional with an interest in you.