What should I do with my RRSP?

Q: I am planning to retire in five to 10 years' time. Can I transfer my RRSP to a RRIF for regular income if I quit from work? How does it work for tax purposes? What government benefits would I be entitled to receive at age 65?

-- Simon Y.

A: You can convert your RRSP to a RRIF at anytime up to the year in which you turn 71. It does not have to be the full value of the RRSP.

However, once you establish a RRIF, there is a minimum amount that you have to withdraw each year. This amount will be subject to regular income taxes based on your marginal tax rate. Growth and other income earned in the RRIF are tax-sheltered. You can also make withdrawals from your RRSP. The withdrawal is usually subject to withholding taxes and will count towards your income for tax purposes in the year you take the funds.

As mentioned, the last year you can keep your RRSP open is the year that you turn 71. At that time, it will have to be converted to a RRIF, collapsed or you can purchase an annuity. It will not be automatically converted if you retire at age 65. That is your choice.

If you contributed to CPP (Canada Pension Plan), you will be entitled to apply for CPP benefits as early as age 60 but it will be at a reduced amount. The benefit is reduced by 0.5 per cent for each month taken prior to turning 65. So, if you started to take CPP at age 60, your entitled benefit would be reduced by 30 per cent.

For more information, visit the Canada Revenue Agency website at www.cra-arc.gc.ca.

To ask Winnie a question, write to: go_wealthmanagement@scotiamcleod.com.

This article is for information purposes only. ScotiaMcLeod does not offer tax advice. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.