Episode #21 - Two Minutes to a Better RSP: Converting Your RSP When it Matures
Announcer: Welcome to The Money Clip podcast series from The Vault, Scotiabank’s online guide to helping Canadians get ahead financially. Listen in to gain a deeper understanding of your personal finances and find out how a few small changes to the way you manage your money can make a big difference.Michael Seaton: Thank you for joining us on The Money Clip podcast series from Scotiabank. I’m your host, Michael Seaton, and with The Money Clip we provide Canadians with a deeper understanding of personal finance and money-related matters. This is our series titled “Two Minutes to a Better RSP”. We hope to put you on the path to understanding how to maximize your retirement savings plan as the deadline approaches. This is episode fifteen in the RSP series, and our subject today is converting your RSP to an income option. After spending a good part of your life building up your RSP, what happens when you’re now ready to enjoy the benefits of your savings? In other words, when you’re read to retire, what do you do to convert your RSP to an income source? Well, today we’re going to discuss what happens when your RSP matures. Now it’s important to know that, by law, you must convert your RSP to an income-producing vehicle by the end of the year in which you turn 69. So if you’re turning 69 years of age this year, you must convert your RSP by December 31. Now, when you convert, you basically have three options. First, you can take the entire value of your RSP in cash. If you choose this option, the entire value of your RSP will be taxed as income. Second, you can purchase an annuity with the money in your RSP. The annuity does give you a guaranteed fixed income for a set term, or for the rest of your life. Or third, you can convert your RSP to a Registered Retirement Income Fund, or RRIF, as it’s called. Because of its flexibility, a RRIF tends to be the most popular option of the three. With a RRIF, you can leave your RSP investments intact, and any income earned is tax deferred – just like in an RSP. This can also help your savings to grow. That means you can hold mutual funds and GICs in your RRIF and individual stocks and bonds if you have a self-managed plan. However, you must withdraw a minimum amount of income from your RRIF each year, and this income is subject to tax. If you are turning 69 this year, it’s a good idea to speak to your financial advisor well before the end of the year. Your advisor can review all of your options and help you choose the one that’s right for you.
This has been another Two Minutes to a Better RSP podcast. Keep listening for more in this series as we take two minutes to review tips and suggestions to reach your retirement goals. Thank you for listening.
Announcer: Do you have any thoughts on today’s show? We’d love for you to get involved and become part of the conversation. Send us your questions, comments or money management tips so that we can address them in future podcasts. Our email address is themoneyclip@scotiabank.com and our call-in number is 1-866-652-5333. The Money Clip is brought to you by The Vault at Scotiabank. Be sure to tune in again next time.