Are
you 60 plus? If so, it is time to start thinking about rolling your RRSP
into a RRIF
Author:
News Canada
(NC)—Up
until now, your RRSP has been a vehicle for saving money. Your retirement
savings may now begin to serve a new function. If you have your savings in
an RRSP (Registered Retirement Savings Plan), you need to start thinking
about rolling it over into a RRIF (Registered Retirement Income Fund) account.
By law, Canadian investors must convert their RRSPs to a source of retirement
income by December 31st of the year in which they turn 69.
"It
is a good idea to re-evaluate your portfolio whenever your investment or
lifestyle goals change," says Judy Thomson, Director, BMO Mutual Funds.
"Most retiring Canadians choose to convert to a Registered Retirement
Income Fund (RRIF) since it allows investors the most flexibility in terms
of holdings and is a tax-efficient way to use retirement savings as a source
of income."
A
RRIF account takes the savings in your RRSP and provides you with a regular
source of income. A RRIF is not the only option available for an RRSP, but
it is the most popular, since it allows your money to continue to accumulate
tax-free (other retirement vehicles, such as annuities, provide deferral
of taxes).
With
a RRIF, you must take income annually beginning no later than the year following
set up (e.g. if you converted your RRSP to a RRIF in 2003, you must begin
to receive income from it no later than the end of the year in 2004). The
annual amount is a legislated minimum based on a prescribed formula set by
the Canada Customs and Revenue Agency (CCRA).
The
CCRA also allows you to use your spouse's age for calculating the minimum
withdrawals. This means that if your spouse is younger, it will reduce the
minimum amount of income and the amount of tax you pay.
If
you are not interested in converting your RRSP into a RRIF, there are two
other options — you can purchase an annuity or you can withdraw all
of your RRSP assets in cash. However, with an annuity you could be locked
into a fixed interest rate for the life of the instrument and if you withdraw
in a lump sum all of your RRSP savings, you could face major tax implications.
It is a good idea to meet with a financial planner to decide which option
better suits your needs.
If
you're considering retirement, speak with a financial planner at your local
bank branch for guidance. The financial planner will be able to help you
determine if you need to shift your portfolio holdings to better suit your
retirement needs based on your situation.
Information
provided by BMO Mutual Funds. For more information visit your nearest BMO
Bank of Montreal branch, call 1-800-665-7700 or 1-888-636-6376 in Quebec
or log on to www.bmo.com/mutualfunds.
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News Canada
