> RRSPs - Maturity Options
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 69.
Option 1: Deregister your RRSP and receive a lump sum cash payment; and/or
Option 2: Convert to a Registered Retirement Income Fund (RRIF); and/or
Option 3: Purchase either a Life Annuity or Term Certain Annuity to age 90.
Which option(s) should be chosen depends upon a number of criteria, but simply stated, your decision relates to 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. Lump sum payments are generally inappropriate except when the RRSP is relatively small.
At maturity, most individuals choose either a RRIF or an annuity. The conversion from a 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.
Registered Retirement Income Fund (RRIF)
A Registered Retirement Income Fund (RRIF) is basically an extension of an RRSP except that it is intended to provide an on-going flow of income. Choosing this option will allow you all the same flexibility provided by the RRSP such as 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.