Getting Ready To Retire: Maturity Options for Your RRSP

Written by The Inspired Investor Team

After spending years building your nest egg, you may be ready to start using it to fund your retirement. While deciding exactly when to start drawing on retirement savings is different for all investors, there is one deadline that applies to everyone with a Registered Retirement Savings Plan (RRSP): By the end of the year you turn 71, your RRSP matures and must be dissolved.

Here we look at the options available to you when your RRSP matures, and key considerations for your income planning. (Note: RRSP conversions can technically occur any time, but must be completed by the end of the calendar year you turn 71.)

RRSP Maturity Options

When you decide it's time to start withdrawing income from your RRSP – or when you reach the end of the year in which you turn 71 – you have three options. Note that, regardless of which one you choose, all withdrawals are taxable as income on your tax return.

• You can transfer your RRSP investments to a Registered Retirement Income Fund (RRIF), which – as its name suggests – is designed to provide you with retirement income. Your RRSP holdings move over in-kind or "as is," meaning they are not sold. Just like an RRSP, you can hold qualified investments in your RRIF, and any investment gains are tax-deferred. Once you convert to a RRIF, you or your spouse can no longer contribute funds and you must withdraw a minimum amount every year that is part of your taxable income.
• You can use the funds in your RRSP to purchase an annuity (not available through RBC Direct Investing). An annuity is a contract under which you pay a lump sum to an insurance company in exchange for steady, guaranteed income for a fixed period of time. Depending on the type of annuity and any guarantee option selected, your survivor or beneficiary may continue to receive income or a payout if you die prematurely. Note that once you purchase an annuity, the funds are no longer available to you.
• You can withdraw or "cash out" your RRSP funds (less withholding tax) in cash or in-kind. Note that the full value of what you withdraw is taxable as income, so this may be the least tax-efficient option.

Why convert your RRSPs at RBC Direct Investing?

One benefit when converting your RRSP to a RRIF at RBC Direct Investing is that you can view your RRIF information online, including your annual minimum withdrawal requirement. You can even make changes. Viewing and managing your own income details online means you can:

1. Save time. The online view and edit feature makes managing your income stream fast. You can see your required minimum payments early in January, beginning the year after you've opened your account, and you can make your own quick changes to payments or income schedule.
2. Save energy. Having your retirement income accounts all in one place means you don't have to figure out minimum payments or manage your income flow between financial institutions.
3. Stay in the know. You'll have high visibility of your income details, which includes changes you've made at any time of year. A running year-to-date summary leaves out the guesswork.

How to convert your registered savings plan

If you are an RBC Direct Investing client, you can open a self-directed individual or spousal RRIF, LIF, PRIF, LRIF or RLIF online. Log in to the site and select Open a New Account from the My Portfolio menu. Follow the steps to complete your application. You can also visit an RBC Royal Bank branch in person to have your RRSP or locked-in account converted.

Tips for setting up your RRIF:

• Naming Beneficiaries (again): You will need to set up your beneficiaries again once your RRSP is converted to a RRIF. Any existing beneficiaries you may have set up on an RRSP are not carried over. (In Quebec, beneficiaries can only be named in a will.)
• In-kind withdrawals vs cash: If you don't need the cash, to meet the minimum annual withdrawal requirement, you may decide to transfer the same value in securities to a non-registered account. An in-kind withdrawal means the securities are withdrawn “as is" without being sold.
• Pension Income Credit: Depending on your individual circumstances, you may qualify for a non-refundable tax credit of up to $2,000 of pension income, which includes income from a RRIF.
• Spousal Considerations: If you'd prefer reduced minimum annual withdrawals, you may choose your younger spouse or common-law partner's age. The advantage of this is that more funds can stay in the RRIF to benefit from tax-deferred growth. You'll need to make this arrangement before you receive your first payment.

Spousal RRSPs

If you have a spousal RRSP, you can convert it to a spousal RRIF. Like regular RRIFs, spousal RRIFs also require a minimum withdrawal every year and do not permit contributions. Take note that if your spouse has made any spousal RRSP contributions in the same year as, or in the two years preceding, the spousal RRIF withdrawal, income may be attributed back to your spouse if the RRIF withdrawal exceeds the minimum annual payment.

Registered Pension Plans, Locked-in RRSPs and Locked-in Retirement Accounts

Similar to an RRSP, you will need to choose a maturity option for any registered pension plans and locked-in retirement accounts or retirement savings plans by the end of the year you turn 71. Your options generally depend on the governing legislation for your locked-in funds and where you worked and earned the pension benefits.

The table below summarizes the maturity options for various federal or provincial plans.