6 things to do when your RRSP matures

July 28, 2015

An RRSP matures at the end of the year in which you turn 69, and with careful planning you could minimize how much tax you’ll have to pay on it. Here's how to get the most out of your RRSP.

6 things to do when your RRSP matures

1. Two different options

You basically have two options to choose from in order to take advantage of the status of your RRSP.

  • You can roll it over into a Registered Retirement Income Fund (RRIF). The earnings will continue to accumulate tax-free, but you are required to withdraw a certain amount of income each year.
  • You can use the funds to purchase an annuity from an insurance company. Basically, you hand over a lump of cash and the insurance company agrees to provide you with a predetermined income for life.

2. Opt for both

You could purchase an annuity with a portion of your RRSP funds and roll the rest over into an RRIF. That way you would be assured a basic guaranteed income, with the potential for higher returns and/or an inheritance for your survivors from the RRIF.

3. Protecting your annuity

If you die shortly after buying a single life annuity, your fund will revert to the insurance company — under current rules, you cannot leave it to your dependants. You can prevent this by taking out an income-protected annuity.

4. Annuity vs. RRIF

Whether you choose a RRIF or an annuity is a decision that may well have implications for your financial future. Below are the relative advantages of both options. Be sure to fully research their advantages and disadvantages.

  • Check out the Canada Revenue Agency for information about pension, annuities and RRIFs (www.craarc.gc.ca/tax/individuals/topics/income-tax/return/completing/reporting-income/lines101-170/115/rrif-e.html).

5. Protect your annuity

Shop around to get the best features and rates. Indexed annuities will provide income that is protected from inflation — as inflation increases, so does the amount of your payment.

6. Get the most from your RRIF

While returns from RRIFs can be higher than annuities, they are also subject to fluctuation depending on how you're invested and what's happening in the market. If you are 30 years old, you should invest 30 percent of your assets in safe fixed income investments or bonds. If you're 65 years old, you should have 65 percent of your assets invested in safer investment vehicles.

  • The more conservative you are, the greater your inflation risk. If inflation is three percent and you're earning a three percent return on your RRIF, you're not earning any return at all.

Canada represents only about two percent of the world economy. Since you will already be drawing a pension in Canadian dollars, not all of your holdings should be in Canada.

  • Investing in foreign markets is one way to diversify the assets in your RRIF. You will receive a T-4 RIF slip showing the amount of payments you received from your RRIF in that year. You have to include that amount on your income tax return, but you don't have to pay tax on the payment if you just take the minimum amount.

Unless your RRIF is passed on to a surviving spouse or a financially dependant child or grandchild under the age of 18, on your death, the entire value of your RRIF will be considered part of your final tax return.

  • But this won't automatically happen — you'll have to name your spouse or dependant as "successor annuitant." What this means is that they will receive RRIF payments in your place.

In the end, the most important thing is to act quickly to make sure your RRSP is collapsed at the right time. Following these tips can help prepare your RRSP, so you are not burdened with extra taxes when you're ready to retire.

The material on this website is provided for entertainment, informational and educational purposes only and should never act as a substitute to the advice of an applicable professional. Use of this website is subject to our terms of use and privacy policy.
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