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Age limit for RRSP
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Age Limit for RRSP

A Registered Retirement Savings Plan (RRSP) is an account you create in which you, your spouse, or your common-law partner make contributions. The federal government permits you to contribute to your RRSP up to an annual limit based on your contribution room until the year you clock 71 years of age, regardless of whether you are receiving an income in your retirement years. You have until December 31 of the year you turn 71 to deal with your RRSP. The sum in the plan will become taxable if nothing is done. Most people move the remaining funds into an annuity or a Registered Retirement Income Fund (RRIF).

If you decide to convert your RRSP into an RRIF, you will need to determine how much income you will require in retirement and create a withdrawal strategy. You must make minimal withdrawals, so bear that in mind (which can also be based on the age of a younger spouse). Withdrawals from RRIFs must start the year after the RRIF is created. The earlier you convert, the greater the risk of running out of money. RRIFs are available as early as age 55, but you cannot convert them back to an RRSP.

You should assess the long-term tax consequences of your withdrawal against your (and your spouse’s) other retirement income sources when earning money in your retirement years and considering additional RRSP contributions. Alongside your regular sources of income, you should also consider pension incomes like the Canadian Pension Plan (CPP), which kicks in between the ages of 60 and 70, and Old Age Security (OAS) (which begins between 65 and 70 years old). You run the danger of being classified into a higher tax bracket and paying more tax with your extra RRSP withdrawals because CCP and OAS are combined as net income on tax returns. As an alternative, you may put that money toward a TFSA, where future withdrawals are tax-free, instead of an RRSP.

Any Canadian is eligible to make a contribution to their RRSP each year. The amount to be contributed is the lesser amount of these two:

  • 18% of your earnings from the previous year; or
  • The highest amount allowed by the CRA for the relevant year.

Any unused contribution sum is not lost but transferred to subsequent years, so you do not lose the opportunity of maximizing your contribution limit. Bear in mind that any contributions from a group or employer pension plan must be deducted from the amount you can contribute to an individual RRSP account. Canadians are informed of their annual contribution room by the CRA on their notice of assessment. Contributions must be made during that year’s taxation or during the first 60 days of the following year in order to qualify for a tax deduction for taxes paid the prior year.

Making an RRSP withdrawal before retirement has tax implications. The following taxes must be paid if you withdraw funds from your RRSP before it’s time for you to retire:

Withholding tax

10–30% of the withdrawal you make will be withheld by the financial institution where you have your RRSP and paid to the government. Where you live and how much you take out will affect how much is withheld.

Income tax

The CRA considers money taken out of an RRSP to be taxable income. You might be charged more when you file your return depending on the tax bracket you’re in (in addition to the withholding tax paid when the withdrawal occurred).

There are two circumstances in which you can take money out of your RRSP without paying taxes.

1. House Buyer's Plan

You are allowed to withdraw $25,000 from your RRSP to put as down payment on your first home. Your spouse is likewise permitted to take this amount out of their RRSP for this purpose if you have one. However, you have 15 years to put the borrowed money back into your RRSP.

2. Lifelong Learning Plan

You are also permitted to take out a lifetime loan of up to $20,000 for the purpose of continuing your education and retraining. $10,000 is the maximum withdrawal amount per year, and any borrowed funds must be returned to the RRSP within 10 years.

FAQ

Nothing happens to your RRSP when you turn 70. The year you turn 71, however, your RRSP must be converted into a RRIF by the end of the year. 

The age limit to contribute to an RRSP is 71 years old. 

A 16 year old can contribute to an RRSP. As long as they have the contribution room available from prior years they can contribute up to that max amount. 

You can contribute to an RRSP if you’re retired. As long as you have contribution room and are under the age of 71, you can contribute to an RRSP. 

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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