Before the end of the year in which an individual turns 71, they must close out their Registered Retirement Savings Plan, generally by transferring to a Registered Retirement Income Fund, states Morningstar. Individuals may also make RRSP withdrawals before turning 71, following certain rules, states The Globe and Mail.Continue Reading
RRSPs not closed by December 31 of the year the account holder turns 71 automatically deregister, and the account holder must pay tax on the total amount in an RRSP at once, which puts many people into the highest tax bracket, explains Morningstar and CBC. However, by properly transferring the RRSP to an RRIF, tax remains deferred until it is withdrawn in smaller amounts.
RRIF accounts come with minimum annual withdrawal amounts that increase with age, explains CBC. For instance, a 71-year-old must withdraw 7.38 percent of his RRSP, while an 81-year-old must withdraw 8.99 percent. Account holders may use the age of a younger spouse to decrease minimum withdrawal amounts. Additionally, individuals may continue to make contributions to a younger spouse's RRSP, explains RBC
Some RRSP account holders opt to transfer the money to a registered annuity instead of an RRIF, states CBC. However, while annuities provide guaranteed income and growth, low interest rates encourage most people to stick with RRIFs, which allow them to keep the same investments as in RRSPs.Learn more about Investing