RRSP Withdrawal Rules at Age 71
Tiffany Woodfield, Senior Financial Advisor, Associate Portfolio Manager, CRPC®, CIM®, TEP®
Summary of Key Points
An RRSP is flexible, and you can withdraw funds at any time.
You do not need to wait until converting an RRSP to a RRIF to make a withdrawal.
RRSP withdrawals are added to your income for that year and taxed accordingly.
Any amount withdrawn permanently reduces your RRSP contribution room, though the new room continues if you keep working.
By the end of the year, when you turn 71, you must convert your RRSP to a RRIF or purchase an annuity.
Video Script
In this video we’re going to walk through the top 3 things you need to know about RRSP withdrawal rules at 71. You’ll also learn that an RRSP is more flexible than you might think!
I’ve been a CFP for 25 years, and I often tell people, to their surprise, that they can take money out of their RRSP at any time, not just after they turn 71.
There are three things you need to know about the RRSP withdrawal rules.
1) RRSP Withdrawals
First, you don’t have to wait until your RRSP is converted to a Registered Retirement Income Fund (RRIF)to withdraw money.
For example, if you have a year of transition, where you are earning less money than usual, this might be a good time to take money out of your RRSP. You will pay less tax than your regular, higher, tax years.
Note that, once you take the money out of your RRSP, you lose that contribution room forever.
For example, if you take out $10,000 from your RRSP, you will pay tax on the money in that year and cannot add the $10,000 back. That contribution room is gone. But, you can still earn more contribution room each year as long as you have earned income.
2)RRSPs, RRIFS, Annuities
The next thing you should know about RRSPs is that by the end of the year you turn age 71 you have to either convert your RRSP to a RRIF or purchase an annuity. Fortunately, you don’t actually have to take income out until the following year.
With an annuity you purchase an insurance product and convert your money to a pension.
But the most common option when you’re 71 is to convert your RRSP to a RRIF as it has more flexibility when withdrawing and you can choose investment options.
A RRIF does have a required minimum that you must take out each year. But aside from that, you decide the investments in the account, the frequency of withdrawals, and if you would like to take out additional funds.
3)RRSP Rules for Dual Citizens
Finally....if you are a dual citizen or green card holder with an RRSP the same rules apply at age 71. Canadian taxes are generally higher than US taxes, so you typically will not owe any additional tax to the IRS when you start taking money out of your RRSP or RRIF.
Are you trying to decide if you should take money from your RRSP?
If so, you should seek out a CFP who will crunch the numbers. The two main items considered are your age and your present income compared with your estimated income in future years.