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RRSP Maturity Options

There are several maturity options available to allow you access to your RRSP assets, each with specific advantages and disadvantages. You can convert all or a portion of your RRSP assets to any of the following options. This conversion can occur at any time, but you must convert all RRSP assets by December 31st of the year in which you turn age 71.

  • Deregister your RRSP and receive a lump-sum cash payment.
  • Convert to a Registered Retirement Income Fund (RRIF).
  • Purchase an annuity.

The option(s) you should choose depends upon a number of criteria, but your decision should be based on whether or not you want income now or later, or if you want to maximize your estate for your heirs. Some of the criteria to consider include:

  • Personal and family income needs
  • Estate objectives
  • Required income flexibility versus income guarantee
  • Desire to minimize income tax
  • Need to protect against inflation

The tax implications of your decision will vary depending upon the option that you choose. A RRIF or annuity will continue to provide a degree of tax deferral since income will be received over a number of years. Lump-sum payments of cash will attract the most adverse tax consequences and are usually inappropriate except when the RRSP is relatively small.

At maturity, most individuals choose either a RRIF or an annuity. The conversion from an RRSP to a RRIF or annuity occurs on a tax-deferred basis. Also, if converting to a RRIF the investments held in your RRSP can be transferred directly into the RRIF account. Investments in your RRSP do not have to mature or be liquidated prior to transfer to the RRIF.

 

Convert to a RRIF

A RRIF is basically an extension of an RRSP except that it is intended to provide an ongoing flow of income. Choosing this option will allow you all the same flexibility provided by the RRSP, including allowable investment types and access to funds. Unlike an RRSP, a RRIF does require the receipt of at least a minimum annual payment. The RRIF option provides the maximum amount of flexibility of the available maturity options, allowing you control over the management of your assets, flexibility of annual income and potential tax minimization.

 

Purchase an Annuity

An annuity is essentially a contract between an individual and an insurance company to provide a guaranteed income stream for the individual's life or for a fixed term. In purchasing an annuity you must decide whether all or a portion of your RRSP will be used to purchase an annuity as well as determine the type of annuity that should be purchased based on your retirement and estate objectives. This decision can be complicated since there are many options to choose from. The amount of annuity income received will depend on the annuity option chosen and factors such as life expectancy, current age, sex, health, amount invested and interest rates at the time of purchase. By purchasing an annuity, you are locking in current interest rates on the investment for the annuity's duration.

Various types of annuities can be purchased with RRSP funds, including a:

  • Life annuity, with or without a guarantee
  • Joint life annuity, with or without a guarantee
  • Term-certain annuity to age 90
 
 

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