What to do when your RRSP matures

In the year that you turn 71 years old, you will be required to either (1) convert your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF); (2) withdraw the funds; or (3) use them to purchase an annuity.

Each of these options has different features and tax implications. For example:

  • You will be required to take out a minimum amount from your RRIF each year but there is usually no maximum on how much you withdraw. The minimum amount you must withdraw from your RRIF increases as you get older. You will pay income tax on the money that you withdraw.
  • There are different types of annuities (such as term, life, variable) and they each have different features. Some annuities pay you a set amount for the rest of your life, but be aware that you can’t close the annuity or take out additional money. If you need flexibility to withdraw additional money from time to time, then an annuity might not be right for you.
  • If you withdraw the funds from your RRSP it is likely that the full amount will be taxed as income in the withdrawal year. Part of your withdrawal will be held back as a reserve on the anticipated tax owing – something that is known as withholding tax.

Consult with your financial advisor or trusted financial professional to make sure you understand the options, including their tax and estate implications, before you decide on a course of action.