Here’s what to do with your RRSP before turning 71
The deadline for making contributions to a registered retirement savings plan (RRSP) for 2021 taxes is March 1.
Dave Schurman of the FirstOntario Credit Union joined Annette Hamm on Morning Live to answer viewer’s questions about retirement savings plans.
“What do I need to do with my RRSPs before I turn 71 and what is the best strategy for utilizing my RRSPs?”
The last day you can contribute to an RRSP is Dec. 31 of the year you turn 71.
Before this date, one option is to withdraw the amount in the RRSP in cash. However, Schurman said this is not the best choice because it will become taxable income.
“Remember you save tax on every dollar you put into an RRSP and pay tax on every dollar you withdraw,” he said.
Other options are to transfer the funds to a registered retirement income fund (RRIF) or purchase an annuity.
Contributing money into an RRIF is similar to an RRSP: “You still have the money and can invest it the same way you invest in an RRSP. But the difference is you have to take out a minimum amount every year in income,” Schurman said.
With an annuity, he said you would be trading your RRSP for a guaranteed monthly income that will never stop for the rest of your life.
“Dave, you mentioned Spousal RRSPs last time. Can you explain more about the advantages of a spousal RRSP?”
A spousal RRSP enables you to contribute money to your spouse or common-law partner’s registered retirement savings plan, up to your personal contribution limit. When a contribution is made to the spousal RRSP, the contributor receives a tax deduction.
Schurman said there are three clear benefits of a spousal RRSP:
- If your spouse earns less than you and you want to even out retirement savings between the two of you
- If your spouse does not have any contribution room. For example, a stay-at-home spouse with no income can build retirement savings through a spousal RRSP
- If you are over 71 and your spouse is under 71, you cannot have an RRSP yourself but you can contribute to your spousal RRSP
If you have a question for Schurman, email him at FinanceFriday@FirstOntario.com or message him on Twitter at @Finance_Friday. If your question or topic is selected to be covered on air, you will win a gift card from a local business in your community.
