RRSP

The ABCs of RRSPs 

What happens to my RRSP when I retire?

You can leave your investments inside your RRSP until you are 71, regardless of whether you are working or not. But at age 71, you have to wind up your RRSP and start taking the money out. If you took all the money out at once and claimed it as income, you would get a massive tax bill that year. Most people transfer their investment assets into a Registered Retirement Income Fund (RRIF). This allows them to receive a regular monthly retirement income.

You don’t have to liquidate your investments to convert. You just sign a document and change the name of the account. What really changes is the rules: You are not allowed to put any more money in, and you are required to start taking money out. A spousal RRSP can reduce your combined tax burden.

Spousal RRSPs can save couples a lot of money. The idea is to equalize the incomes of the spouses as much as possible to reduce your tax bill. It works because you pay far more tax on a single $100,000 income than you do on two $50,000 individual incomes. How this works is for the higher earning spouse to contribute to a spousal RRSP in his or her partner’s name. These contributions will use up some of the higher earning spouse’s contribution room, but when the RRSPs are wound up, you will have two smaller incomes instead of one big income, saving on taxes. This is a form of income splitting and can have a huge impact on your tax liability, saving you up to thousands of dollars in taxes.