Koroll & Company Blog

Vital RRSP Information if You Turned 71 in 2019

[fa icon="calendar"] Dec 23, 2019 2:06:12 PM / by Allen Koroll

Old couple looking at tax options

Registered Retirement Savings Plans (RRSPs) are a unique tax planning tool. The contributions made to an RRSP can be deducted from your taxable income and, unlike other tax planning tools, you have until March 1 of the following year to make contributions.

If, however, you will have turned 71 by December 31, 2019, you must make your contributions before the end of the year. This is due to the fact that all Canadians are required to collapse their RRSP by the end of the year in which they turn 71.

In most cases, this means that the RRSP will be converted into a Registered Retirement Income Fund (RRIF) or used to purchase an annuity, however, it can also be taken in cash or you can opt for a combination of these three options.

In this blog, Koroll & Company explain what these three options mean:

1 - Take it out in cash

Apart from withdrawals made through the Home Buyers Plan and the Lifelong Learning Plan, all income withdrawn from your RRSP is taxable.

As a result, if you opt to withdraw your savings as cash in the year you turn 71, all of it will be treated as taxable income. This will minimize the total amount you actually get to take home (in many cases by 50%).

2 - Purchase an annuity

When you purchase an annuity, you are purchasing a guaranteed income for life. Unlike taking a cash withdrawal, the taxes owed on the payments received on an annual basis and not on the total amount used to purchase the annuity.

The amount received from your annuity will depend on a number of factors which will be discussed when purchasing the annuity such as the guarantee period and whether additional guarantees, such as payment to your spouse after death, are included.

3- Rolling money into a RRIF

The final option for collapsing your RRSP is to put your savings into a Registered Retirement Investment Fund. By rolling your savings into a RRIF, you can continue to grow your savings while making withdrawals.

Unlike an RRSP, however, you are required to receive a minimum amount each year based on the value of the RRIF and your age. Similar to an annuity, taxes are paid on funds in the year they are received.

If you are turning 71 before the end of the year and are looking to determine which of these options is right for you, contact our team of chartered accounting professionals today.

Book A Free Consultation

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

About Koroll & Company

At Koroll & Company we grow our firm through satisfied clients referring us as a trusted accounting firm to their friends, family members and associates. The only way we know how to achieve this is strive to exceed your expectations and provide you with exceptional service. We have 20+ years servicing Newmarket, ON and the surrounding areas, and look forward to servicing you next. So give us a call and speak to a friendly staff member from Koroll & Company today!

Topics: Tax Deductions

Allen Koroll

Written by Allen Koroll