When I'm ready to retire...
What will happen to my RRSP?
If you have a Registered Retirement Savings Plan (RRSP), you are required to collapse it no later than December 31 of the year in which you turn 71. One option is to redeem all your RRSP assets: the entire amount will be treated as earned income and will be fully taxable that same year.
However, you can continue to defer all or most income tax by opting for one of the following two solutions:
- convert your RRSP into a Registered Retirement Income Fund (RRIF), or
- convert your RRSP into an annuity.
What should I do if I have a Registered Pension Plan (RPP)?
Defined Contribution RPP
If you participate in a defined contribution RPP, you can either convert your plan into a Locked-in Retirement Account (LIRA)/Locked-in RRSP2 or a Life Income Fund (LIF)3 (the two most popular choices) or you can purchase an annuity.
Defined Benefit RPP1
If you participate in a defined benefit RPP, a pension is usually payable. However, you might also have the option of receiving the transfer value of the retirement benefit. If you choose that solution, a LIRA/Locked-in RRSP2 or a LIF3 then become ways of extending your plan.
|Types of RPP||Possible options|
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A RRIF is an extension of your RRSP
RRIFs are designed to provide retirement income while allowing income taxes to be deferred. Like an RRSP, a RRIF lets you invest your savings as you wish by choosing from our wide range of investment solutions.
Advantages of a RRIF
- You are not redeeming your RRSP, but simply converting it into a RRIF.
- You are free to choose the eligible investments that are best for you from among a wide selection of options (e.g., GICs, mutual funds).
- In addition to the minimum annual withdrawal, you can withdraw additional monies or even the entire amount, at any time.
- On your death, the RRIF can be transferred to your spouse tax-free.
The LIF and RRIF tax impact section provides information on income tax payable on LIF/RRIF payments that exceed the minimum. It also specifies the deadlines and explains how your spouse’s age can be used to your advantage in the tax calculations.
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You have to convert your LIRA/Locked-in RRSP2 or RPP into a LIF
LIFs share many of the features of RRIFs except that LIFs are subject to a maximum annual payment.
Advantages of a LIF
- You can continue to defer income taxes on your LIRA/Locked-in RRSP2 by converting it to a LIF.
- You are free to choose investments from among a wide selection of options (e.g., GICs, mutual funds).
Converting Your LIF
Participants who are subject to federal LIF legislation or to pension plan legislation in British Columbia, Manitoba, Quebec or Nova Scotia can extend the life of their LIF for as long as they want. Conversion into an annuity is one option available to you. Participants subject to legislation in other provinces must eventually convert their LIF into a life annuity (either at age 80 or 90, depending on the jurisdiction).
Some provinces have retirement income funds with specific conditions. The funds may not have to be converted into an annuity (e.g., LRIF, Prescribed RRIF).
Refer to Tax Impact of RRIF and LIF for information on payments exceeding the minimum, how your spouse’s age can be used to calculate minimum annual payments and deadlines for plan conversion and payments.
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Income taxes on payments exceeding the minimum
Payments from your RRIF or LIF that exceed the minimum annual payment are subject to withholding tax. Any amount you receive from either type of plan must be reported on your income tax return for the year in which the payment was made. You could be entitled to a refund, or you could end up paying additional tax.
If you receive only the minimum annual payment, the money in your RRIF or LIF can continue to grow tax-free. If however, you rely on your RRIF or LIF as your main source of income, you may need larger payments (subject to a maximum annual payment for LIFs).
You can establish your minimum annual payment from your RRIF or LIF based on your spouse’s age if he/she is younger than you are. If this is the case, your minimum payment rate will be lower, which means you can defer taxes for longer. However, you will have to make your decision before you start receiving your benefits and you will not be able to revoke that decision.
There is no minimum age for opening a RRIF or LIF but you have to convert your RRSP into a RRIF or convert your LIRA/Locked-in RRSP2 into a LIF no later than December 31 of the year you turn 71. We suggest you meet with your National Bank adviser as soon as possible. Bear in mind that you must receive your first payment no later than December 31 of the year you turn 72.
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Personal savings from a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) can be converted into a registered annuity:
- Life Annuity
Payments are guaranteed for the entire life of the annuitant.
- Fixed-Term Annuity
Payments are made for a set number of years until the annuitant turns 90.
A life annuity is the only type of annuity available for the funds from a Registered Pension Plan (RPP), Locked-in Retirement Account (LIRA)/Locked-in RRSP2 or Life Income Fund (LIF)3.
Annuities provide stable income and you know exactly how much you’ll receive. In the case of a life annuity, you will receive payments for the rest of your life. In exchange for this security, your benefits are limited to a regular fixed income. And like other types of fixed income, annuities offer less protection against inflation (except for inflation-adjusted life annuities).
The annuity payment amount cannot be modified, and once you’ve opted for an annuity, your decision is irrevocable.
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If you have an RPP under provincial jurisdiction, you can transfer that money into a LIRA.
If you have an RPP under federal jurisdiction, you can transfer that money into a Locked-in RRSP.
Unlike a regular RRSP, and except under specific situations (death, reduced life expectancy, non-residency for two years), money cannot be directly withdrawn from a LIRA/Locked-in RRSP. Instead, you have to convert the plan into a Life Income Fund (LIF)3 or life annuity before you can start withdrawing funds.
The deadline for converting a LIRA/Locked-in RRSP is December 31st of the year in which you turn 71.
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Also known as a private or supplemental pension plan, an RPP is an employer-sponsored plan that provides employees with retirement income through a pension fund.
With a defined benefit RPP1, the retirement benefits are determined in advance. With a definedcontribution RPP, the benefits are based on the contributions paid into the plan and the return earned on investments held within that plan.
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1 The transfer value in excess of the tax limit that can be transferred into a LIRA/Locked-in RRSP must be received in cash and is taxable the year it is received.
2 A LIRA/Locked-in RRSP must be converted no later than December 31st of the year you turn 71.
3 LIFs are subject to either provincial or federal legislation, depending on the applicable jurisdiction for each LIF.