|
RSP Maturity Options
There are several maturity options available to allow you access to your RSP assets, each with specific advantages and disadvantages. You can convert all or a portion of your RSP assets to any of the following options. This conversion can occur at any time, but you must convert all RSP assets by December 31st of the year in which you turn age 69.
- Option 1: Deregister your RSP and receive a lump sum cash payment;
and/or
- Option 2: Convert to a Registered Retirement Income Fund (RIF);
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 RIF 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 RSP is relatively small.
At maturity, most individuals choose either a RIF or an annuity. The conversion from a RSP to a RIF or annuity occurs on a tax deferred basis. Also, if converting to a RIF the investments held in your RSP can be transferred directly into the RIF account. Investments in your RSP do not have to mature or be liquidated prior to transfer to the RIF.
TOP
Retirement Income Fund (RIF)
A Registered Retirement Income Fund (RIF) is basically an extension of an RSP 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 RSP such as allowable investment types and access to funds. Unlike an RSP, a RIF does require the receipt of at least a minimum annual payment. The RIF 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.
When receiving payments from a RIF prior to age 71 or for a RIF established prior to 1993 (for ages under 79), the minimum withdrawal is calculated using the following formula:
| Market Value of the RIF at Dec. 31 of previous year |
x |
1
(90 minus your age* on of previous year
December 31 of prior year) |
|
*If spouse is younger then the younger spouse's age at the end of the prior year can be used to minimize the payment. |
|
TOP
Annuities
An annuity is essentially a contract between an individual (the annuitant) and an insurance company to provide a guaranteed income stream for the individual's life or for a fixed term. In purchasing an annuity the individual must decide whether all or a portion of their RSP will be used to purchase an annuity as well as determining the type of annuity that should be purchased, based on their retirement and estate objectives. This decision can be complicated since there are many options to choose from. The amount of annuity income received will depend on the annuity option chosen and factors such as: life expectancy, current age, sex, health, amount invested and interest rates at the time of purchase. By purchasing an annuity the annuitant is locking in current interest rates on the investment for the annuity's duration.
Annuities may be purchased from a life licensed advisor* who can obtain the best rate currently available.
Various types of annuities can be purchased with RSP funds including:
- a life annuity, with or without a guarantee
- a joint life annuity, with or without a guarantee
- a term certain annuity to age 90
For more detailed information on the maturity options for an RSP, ask your advisor.
TOP
|
