CLICK here to return to IFIS^©

There are four ways of getting your money out of an RRSP. Which of these options you choose could have a significant impact on the quality of your retirement and the funds available to your spouse or other heirs after your death.

Before you make any decisions, you'll need to assemble a clear picture of the amount of funds in your RRSPs, as well as your other investment assets and income sources. You'll also need to project your annual cash flow needs, making sure to account for inflation. Then, you'll need to examine the RRSP maturity options discussed below, keeping three things in mind-your investment objectives, your estate planning goals, and tax planning considerations.

Option #1 - Withdraw the funds and pay the tax

The first way to cash out your RRSP is simply to withdraw the funds. Although this is the easiest route, it will leave you with the least amount for investment purposes since it is the most expensive route in terms of tax - the entire amount withdrawn from the RRSP is included in your income in the year of withdrawal and taxed as ordinary income, just as if it were salary, even if some of the value of the RRSP represents capital gains (which outside an RRSP are normally only partially taxed).

A percentage to cover tax will be withheld at source by the financial institution and remitted to Revenue Canada (and Revenu Québec if appropriate) on your behalf. You will then report the income and amount of tax withheld on your annual income tax return and either receive a refund or, if not enough was withheld, make up the difference.

Option #2 - Purchase an annuity

The second method is to purchase an annuity, which will provide you with a steady income stream over the life of the annuity. The RRSP proceeds will not be taxed immediately; the annuity payments will be taxed as you receive them. Up to $1,000 per year of the income may effectively be exempted through the tax credit for pension income.

There are three general kinds of annuities, each of which can be tailored through a variety of options to suit your needs

"term-certain", payable to you or your estate for a fixed number of years;

"single life", payable to you as long as you are alive; and

"joint and last survivor life", payable as long as either you or your spouse is alive.

You should discuss the available annuity options, and their effect on the monthly annuity payment you receive, with your life insurance agent or trust company.

Option #3 - Transfer your RRSP funds to a RRIF

The third thing you can do with your RRSP is to convert it into a Registered Retirement Income Fund, or RRIF. A RRIF is somewhat like an RRSP, in that you can have it invested in various kinds of securities. However, you must withdraw

at least a "minimum amount" from the RRIF each year, and report what you withdraw for tax purposes. (Again, up to $1,000 per year of such income may effectively be exempted by claiming the pension income tax credit.)

The amount that must be withdrawn from the RRIF is a fraction of the value of the RRIF at the beginning of the year that increases gradually each year, levelling out at 20% once you turn 94.

Option #4 - Convert locked-in RRSP to a LIF

A life income fund ("LIF") provides an alternative to a life annuity when certain individuals, who were formerly members of a registered pension plan, terminate employment or plan membership. The LIF is also an option for individuals who have transferred pension funds to a locked-in RRSP.

A LIF is an RRIF for tax purposes with some additional restrictions. LIFs are available in all provinces except Prince Edward Island and can be purchased with funds governed by either federal or provincial pension regulations. Contact IFIS© to determine whether this option is available for you.

Weigh the alternatives

While your personal cash flow needs should be your primary concern in weighing your RRSP maturity options, your decision should take into account your overall investment and estate planning goals. A straight withdrawal will rarely be your best option, since you will net the least amount of cash after tax. If you prefer simply to have a steady monthly income that you don't have to worry about, consider purchasing an annuity. Instead, if you wish to have more funds to invest and retain a measure of control over your investments, you should think about purchasing an RRIF.

I hope this information is of use to you.

Deciding what to do with your RRSP when you reach your age limit is a critical retirement planning decision. making the right choices is of the utmost importance to you.

You must determine which of the above options are best suited to your own circumstances and integrate the maturation of your RRSP with your overall estate plan.

An Investment Advisors professionals can provide independent counsel to help you to determine your optimum asset mix, select premiere money managers and ensure the ongoing performance of your investments during your retirement.

Consider a tax professionals to help you minimize and defer your tax liabilities in the context of your estate and investment decisions.

Good luck with your choices.

DAVID