|
Converting your RSP to an Income Plan
You may convert your RSP to an income plan at any time, but must do so no later than the end of the year in which you turn 71.
RSPs were designed to provide retirement income, not a permanent tax shelter. Note that the "maturity" deadline is December 31 of your 71th year, not your actual birthday. Also, you can make contributions right up to that point.
There are four options in closing your RSP. Any or all of them can be combined.
- Make a lump sum cash withdrawal or transfer out the securities intact. The full value will be taxed as income, which makes this option less attractive than those below.
- Transfer the RSP assets to a retirement income fund (RIF). You maintain control over your savings and take income until the plan is exhausted. You must make at least one annual withdrawal, based on a schedule of minimums that rise as you age. This withdrawal need not be in cash; you can take out securities that equal or exceed the required withdrawal amount. There is no maximum withdrawal limit, but you should carefully manage your plan so it does not run out too soon. To maximize the tax shelter, you can base your required withdrawals on the age of your spouse if he or she is younger. You can also set up a RIF just before the maturity deadline and delay your first withdrawal until the end of the following year.
- Use the funds to buy a life annuity, providing regular income. A single-life annuity guarantees income for as long as you live. A joint-annuity will run until you and your spouse both die. There is no estate value unless you arrange for a minimum number of payments and death occurs within that guaranteed period.
- Use the funds to purchase a fixed-term annuity that provides regular income until age 90, and pays out a lump sum if death occurs before then.
Ask your National Bank Financial Investment Advisor about our Portfolio RIF, a self-directed plan, as well as the various types of annuities we offer. We can also arrange for guaranteed deposit-based RIFs from a variety of financial institutions. You will find more details in two National Bank Financial publications: A Summary of Retirement Income Products and Your Retirement Income – The Road Ahead.
Using your RSP contribution room after age 71
Many 71-year-olds have earned income from property rentals, director’s fees, business ownership interests, royalties and other sources. That creates RSP contribution room for the next year even though they can no longer have an RSP. Here is how that room can be used:
- If your spouse still has an RSP, you can make spousal contributions to his or her plan. You get the tax deduction.
- Consider a last-minute overcontribution that equals the room you will get in the new year. Suppose you have $30,000 of earned income this year. That would create $5,400 of RSP contribution room. Make a $5,400 overcontribution in December, just before closing your plan under the age-71 maturity rules. You will face a 1% overcontribution penalty for that month, costing $54. On January 1, the system will create $5,400 in new room and legitimize that overcontribution. You will face no more penalties, and you will get a $5,400 tax deduction.
|
