At retirement - National Bank of Canada

If you have a Registered Retirement Savings Plan (RRSP), you are required to collapse it no later than December 31 of the year in which you turn 71.

One of the options available to you at that point is to redeem all your RRSP assets. In that case, the entire amount will be treated as earned income and will therefore be fully taxable that same year.

Instead of redeeming your RRSP, you can continue to defer all or most income taxes by opting for either of the following two solutions:

If you participate in a defined contribution RPP, you can either convert your plan into a Locked-in Retirement Account (LIRA)/Locked-in RRSP² or a Life Income Fund (LIF)³ (the two most popular choices) or you can purchase an annuity.

If you participate in a defined benefit RPP, a pension is usually payable. However, you might also have the option of receiving the transfer value of the retirement benefit. If you choose that solution, a LIRA/Locked-in RRSP² or a LIF³ then become ways of extending your plan.

RRIFs are designed to provide retirement income while allowing income taxes to be deferred. Like RRSPs, RRIFs let you invest your savings as you wish by choosing from our wide range of investment solutions.

You are not redeeming your RRSP, but simply converting it into a RRIF.
You are free to choose the eligible investments that are best for you among a wide selection of options (e.g. GICs, mutual funds).
In addition to the minimum annual payment, you can withdraw additional funds or the total amount at any time.
On your death, the RRIF can be transferred to your spouse tax-free.

The RRIF and LIF tax impact section provides information about income taxes on payments exceeding the minimum, explains how your spouse’s age can be used for calculations and specifies the dates that must be respected.

LIFs share many of the features of RRIFs except that, unlike RRIFs, LIFs are subject to a maximum annual payment.

You can continue to defer income taxes on your LIRA/Locked-in RRSP² by converting it into a LIF.
You are free to choose the eligible investments that are best for you among a wide selection of options (e.g. GICs, mutual funds).

Participants who are subject to federal LIF legislation or to pension plan legislation in British Columbia, Manitoba, Quebec or Nova Scotia can extend the life of their LIF for as long as they want. Conversion into an annuity is one option available to them. Participants subject to legislation in other provinces must eventually convert their LIF into a life annuity (either at age 80 or 90, depending on the jurisdiction).

Some provinces have retirement income funds with specific conditions. The funds may not have to be converted into an annuity (e.g. LRIF, Prescribed RRIF).

Payments from your RRIF or LIF which exceed the minimum annual payment are subject to withholding tax. Any amount you receive from either type of plan must be reported on your income tax return for the year in which the payment was made. You could be entitled to a refund, or you could end up paying additional tax.

If you receive only the minimum annual payment, the money in your RRIF or LIF can continue to grow tax-free. If, however, you rely on your RRIF or LIF as your main source of income, you may need larger payments (subject to a maximum annual payment for LIFs).

You can establish your minimum annual payment from your RRIF or LIF based on your spouse’s age if he/she is younger than you are. In that case, your minimum payment rate will be lower, which means you can defer taxes for longer. However, you will have to make your decision before you start receiving your benefits and you will not be able to revoke it.

There is no minimum age for opening a RRIF or LIF but you have to convert your RRSP into a RRIF or convert your LIRA/Locked-in RRSP² into a LIF no later than December 31 of the year you turn 71. We would advise you to meet with your National Bank advisor as soon as possible. Bear in mind that your first payment must be made no later than the end of the year following the opening of the RRIF or LIF.

It is possible to convert personal savings from a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) into a registered annuity:

Life annuity
Payments are guaranteed for the entire life of the annuitant.
Fixed-term annuity
Payments are made for a set number of years until the annuitant turns 90.

A life annuity is the only type of annuity available for the funds from a Registered Pension Plan (RPP), Locked-in Retirement Account (LIRA)/Locked-in RRSP² or Life Income Fund (LIF)³.

Annuities provide stable income since you know in advance exactly how much you’ll receive (e.g. all your life in the case of a life annuity). In exchange for this security, your benefits will be limited to a regular fixed income. And like other types of fixed income, annuities offer less protection against inflation (except for inflation-adjusted life annuities).

The annuity payment amount cannot be modified in the event of contingencies, and once you’ve opted for an annuity, your decision is irrevocable.

A LIRA is a plan into which money from an RPP under provincial jurisdiction is transferred.

A Locked-in RRSP is a plan into which money from an RPP under federal jurisdiction is transferred.

Unlike a regular RRSP, money cannot be withdrawn from a LIRA/Locked-in RRSP directly, except in certain specific situations (death, reduced life expectancy, non-residency for two years). Instead, you have to convert the plan into a Life Income Fund (LIF)³ or life annuity before you can start withdrawing funds.

The deadline for converting a LIRA/Locked-in RRSP is December 31 of the year in which you turn 71.

Also known as a private or supplemental pension plan, an RPP is an employer-sponsored plan that provides employees with retirement income through a pension fund.

With a defined benefit RPP¹, the amount of retirement benefits receivable is determined in advance. With a defined contribution RPP, the amount of benefits depends on the amount of contributions paid into the plan and the return earned on investments held within the plan.

1 The transfer value in excess of the tax limit that can be transferred into a LIRA/Locked-in RRSP must be received in cash and is taxable the year it is received.
2 A LIRA/Locked-in RRSP must be converted no later than December 31 of the year you turn 71.
3 LIFs are subject to provincial or federal legislation, depending on the applicable jurisdiction for each LIF.