When RRSPs mature

Q – In March, I will turn 71. What happens to my RRSP? Do I need to withdraw the entire amount? – George B., Paris, Ontario

A – The rules state that by the end of the year in which you turn 71 (this is the year for you, George), you will need to collapse your RRSP. You can take the entire amount into income (not very tax-effective if the RRSP is a big one), purchase an annuity, or convert your RRSP into a Registered Retirement Income Fund (RRIF).

A RRIF is much like an RRSP in that it continues to shelter investment growth from tax. The twist is that you must withdraw a minimum amount from the RRIF on an annual basis, at which point it becomes taxable. The annual minimum withdrawal is calculated by multiplying the market value of your RRSP account on December 31 of the previous year by a percentage pre-set by the government.

In the year you turn 71, your withdrawal rate is 7.38% for a “Non-qualifying RRIF” or 5.26% for a “Qualifying RRIF.” A Qualifying RRIF is generally a Registered Retirement Income Fund entered into before 1993, having no funds or property in the plan in 1993 or later except funds or property from another Qualifying RRIF. There is no maximum amount. Contact a financial advisor for more information of your RRSP maturity options. – R.T.

Robyn Thompson, CFP, is the founder of Castlemark Wealth Management, a boutique financial advisory firm, specializing in customized financial, investment, insurance, and retirement planning. Phone             416-828-7159       or email today to rthompson@castlemarkwealth.com for a no-obligation, no-charge Castlemark Integrity Financial Planning consultation.

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