- LIFs are subject to applicable federal and provincial legislation depending on the jurisdiction of the retirement plan from which the funds originated.
RRSP contributions are deducted from your annual income, lowering your tax bill.
You must transfer your RRSP to a registered retirement income fund (RRIF) no later than December 31 of the year you turn 71. Note that if you don’t wind up your RRSP yourself, the government will close it for you, and you will have to pay tax on the whole amount.
Once you’re retired, there’s a minimum annual withdrawal for RRIFs and LIFs1 (a LIF allows you to withdraw the funds from your company pension plan). There is no withholding tax if you withdraw the minimum amount. However, if you withdraw more than the minimum, tax will be deducted at source.
If you don’t need all the money you withdraw immediately, reinvest it in a TFSA: interest and withdrawals are tax-free and won’t impact your eligibility for government programs like the Guaranteed Income Supplement.
The minimum withdrawal for your RRIF is calculated using either your age or your spouse’s age. If your spouse is younger than you, ask for their age to be used to determine your minimum withdrawal. Because income from a RRIF is taxable, it can be beneficial to keep withdrawals as low as possible.
If you have a higher income than your spouse, think about contributing to their RRSP. Why? You’ll pay less tax overall, because two low incomes are taxed less than a single higher income.
You can continue making contributions even if you’re over 71, provided that your spouse hasn’t yet reached the age limit. Remember that your RRSPs should be more or less equal before you retire.