Registered Retirement Savings Plans (RRSPs), Locked-in Registered Retirement Savings Plans (RRSPs) or Locked-in Retirement Accounts (LIRAs) are effective tools to save for your future. There are several maturity options available to access your RRSP assets and each has specific advantages and disadvantages. Your RRSP reaches maturity on the last day of the calendar year you turn 71 and then you'll need to convert all of your RRSP assets to an option, or combination of, listed below. The tax implications depend on the option(s) you choose.
- Deregister your RRSP and receive a lump-sum cash payment
- Convert to a Registered Retirement Income Fund (RRIF)
- Purchase an annuity
The maturity option(s) you choose will depend on a number of criteria. This is a time to determine whether you want income now (or later) or whether you want to maximize your estate for your heirs. Criteria to consider include:
- Personal and family income needs
- Estate objectives
- Guaranteed or flexible income
- The desire to minimize income tax
- The need to protect against inflation
A RRIF or an 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 and are typically not recommended unless the RRSP is relatively small.
At maturity, most individuals choose either a RRIF or an annuity. The conversion from an RRSP to a RRIF or an annuity occurs on a tax-deferred basis. Also, if converting to a RRIF, the investments held in your RRSP can be transferred directly into the RRIF account. Investments in your RRSP do not have to mature or be liquidated prior to that type of transfer.
Convert to a RRIF
A RRIF is basically an extension of an RRSP, except that it is intended to provide an ongoing flow of income. Choosing this option will allow you the same flexibility provided by the RRSP, including the same types of investments and access to funds. Unlike an RRSP, a RRIF does require the payout of at least a minimum annual payment. Of all the maturity options available, the RRIF provides multiple flexible options, allowing you to control how your assets are managed, the flexibility of annual income and potential tax minimization.
Purchase a life annuity
A life annuity is essentially a contract between an individual and an insurance company to provide a guaranteed income stream for the individual's life or for a fixed term. In purchasing an annuity, you must decide whether all or a portion of your RRSP will be used to make the purchase, as well as what type of annuity you want to buy, which will depend on your retirement and estate objectives. This decision can be overwhelming due to the number of options available. The amount of income you receive will depend on the type of annuity you choose, plus factors such as life expectancy, current age, gender, health, amount invested and interest rates at the time of purchase. By purchasing an annuity, you are locking in current interest rates on the investment for the annuity's duration.
Various types of annuities can be purchased with RRSP 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
Maturity options for Locked-in RRSPs (or LIRA)
A Locked-in RRSP, also known in some provinces as a LIRA, is created when you transfer the commuted value (lump sum payment) of a Registered Pension Plan (RPP). The commuted value represents the present value of all of the future pension payments that you would have received if you had remained a member of the RPP.
The Locked-in RRSP and the LIRA have virtually identical attributes, and non-registered funds cannot be contributed to these accounts.
Locked-in RRSPs and LIRAs have different maturity options than regular RRSPs and can vary based on your province of residence. The options for receiving income from a Locked-in RRSP/LIRA include:
- Purchasing a life annuity
- Transferring the funds to a Life Income Fund (LIF)
- Transferring the funds to a Locked-In Retirement Income Fund (LRIF) (Newfoundland and Labrador)
- Transferring the funds to a Prescribed Registered Retirement Income Fund (Prescribed RRIF) (in Saskatchewan and Manitoba)
In Quebec, financial planning services are provided by RBC Wealth Management Financial Services Inc. which is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RBC Dominion Securities Inc.