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By law, you have to collapse your Registered
Retirement Savings Plan by the end of the calendar year in which you
celebrate your 71st birthday. As a rule, when you take money from your RRSP
it’s taxable.
Basically, when you collapse your RRSP you have three options:
- Take the entire amount in cash. Of course, it will all be subject to tax so that may not be the wisest course of action.
- You can purchase a Single Payment Immediate Annuity (SPIA) and begin receiving a regular income. Remember this income is still subject to tax.
- You can roll over your RRSP into a Registered Retirement Income Fund (RRIF), which can be composed of different investment types. You must draw at
least a minimum amount of income from your RRIF every year, and any income withdrawn is subject to tax.
Single Premium Immediate Annuity (SPIA)
Many people decide to purchase a SPIA when collapsing their RRSP. They have the
security of knowing exactly how much money to expect, and when to expect it to
be paid. It’s like your own private pension.
The income from your SPIA is determined by a formula that includes your age,
gender, the term of the annuity, the frequency of the income payments and
the size of the single premium (lump sum). This can all be clarified
during a conversation with your Foresters representative.
Registered Retirement Income Fund (RRIF)
Other people "roll over" their RRSPs into RRIFs because the accumulated amount
and the income subsequently earned continues to be tax-deferred. The minimum
varies each year and is determined by your age.
Buying a RRIF gives you flexibility in making decisions regarding income in your
retirement. Once you buy an annuity, you’re locking in your income. With the
help of a representative you can determine the appropriate investments for your
RRIF.
Upon your death, the full amount of your RRIF is paid to your chosen beneficiary
or your estate and is considered your income in the year of your death. If your
spouse is the beneficiary, he or she has several options including continuing to
receive payments from your RRIF or “rolling over” your RRIF into theirs on a
tax-deferred basis.
Foresters offers RRIFs with a variety of guaranteed interest accounts.
Advantages and Disadvantages
- With the cash option, you probably get the least amount of value because the tax must be paid on the amount you withdraw.
- With the SPIA option, you probably won’t outlive your income (which is a common concern among retired people.) On the other hand, your income is fixed forever and not under your control.
- With the RRIF option, you can have control over the investment choices and the amount of income you draw out, but you may not have certainty about whether your RRIF will last as long as you do.
What’s right for you? That’s why you need to talk with an independent Unity Life representative, a financial professional with an interest in you that’s more
personal and rewarding.
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