RRSP rules abound for how much you can contribute and when you can contribute, the types of investments you can hold, how to designate beneficiaries, and how to withdraw RRSP funds without paying taxes.
There is also an age limit for your RRSP, i.e. the maximum age at which you can contribute to your RRSP account.
RRSP Withdrawal Rules at Age 71
An RRSP must be terminated by December 31 of the year you turn 71.
At its expiration, you can no longer make contributions to the account and can only do one or a combination of the following:
- Withdraw the cash
- Convert the RRSP into an RRIF
- Purchase an annuity
Withdraw RRSP Cash
You can withdraw cash from your RRSP at any age, be it at 50, 55, 60, or 65 years. Unless the withdrawals relate to the Home Buyers’ Plan or Lifelong Learning Plan program, taxes are withheld at the source.
When your RRSP matures at age 71, one option is to withdraw all or a portion of the funds in cash. Depending on the amount, a tax of up to 30% is withheld by the financial institution.
The money is included in your taxable income for the year, and you may have to pay extra taxes when you file your income tax if your tax bracket (marginal tax rate) exceeds the tax withholding.
Convert RRSP to RRIF
The Registered Retirement Income Fund (RRIF) is similar to an RRSP, except that you can’t make contributions and must withdraw a minimum amount every year.
When you transfer your RRSP directly to an RRIF, there are no immediate tax implications.
RRIFs are designed for the documentation phase of retirement. Your investments continue to grow with taxes sheltered until you make withdrawals.
Although there is a minimum annual withdrawal, you can take more than the minimum amount.
If you have a locked-in retirement account (LIRA) or LRSP from a pension, you can transfer it to a Life Income Fund (LIF), Locked-In Retirement Income Fund (LRIF), or Prescribed Registered Retirement Income Fund (PRIF).
Confused about LIF, LRIF, RLIF, PRIF, or LIRA? Here is what they mean.
Purchase an Annuity
An annuity is a financial product that pays you a fixed monthly income for life or for a specified length of time. They are sold by life insurance companies.
You can purchase an annuity using a portion of all of your RRSP. Tax is payable on your annuity payments.
RRSP Strategies at Age 71
If you earn income in the year you turn 71; it creates an interesting conundrum because you get RRSP contribution room in the following year even though you can’t make a self-contribution.
One way to circumvent this issue is to make an excess RRSP contribution in the year you turn 71.
For example, if your income in 2023 (the year you turn 71) will generate an RRSP contribution room of $15,000 in the year 2024. You can contribute the $15,000 just before the end of 2023 (e.g. in December 2023) and pay the RRSP excess contribution penalty for one month.
By January 1, 2024, the excess contribution is no longer considered to be an over-contribution, so you only pay a penalty interest of 1% x $15,000 or $150.
If you haven’t used up the allowable $2,000 lifetime RRSP excess contribution buffer, you only pay the 1% penalty on $13,000 ($130).
The great thing about RRSP contributions is that you can use your deductions to lower your tax burden whenever it is optimal in the future.
Note that after age 71, you can still make spousal RRSP contributions if your spouse is 71 or younger and you have RRSP contribution room.
RRSP Minimum Age Requirements
While there is a maximum age at which you can have an RRSP, there are no minimum age requirements.
A child can open an RRSP account with the consent of their parents or legal guardians if they have earned income and generated an RRSP contribution room.
On the flip side, you must be at least 18 years old before you can open a TFSA account.
Read this TFSA vs. RRSP comparison for scenarios where one account trumps the other.
RRSP Withdrawal Age FAQs
You can make RRSP withdrawals at any age (30, 55, 60, 65, etc.). Outside of the HBP and LLP programs, RRSP withdrawals are taxed.
At age 71, you must close your RRSP and either withdraw it as cash, purchase an annuity, and/or transfer it to an RRIF.
The minimum RRIF withdrawal varies based on your age. At 71, it is 5.28%.
Direct RRSP to TFSA transfers are not possible without tax implications.