Markets have not been performing well for the past few years; however July did see an increase in equity markets. And you likely saw this reflected in recent retirement savings plan statements.
If you turn 71 this year, you must convert your RRSP into either a registered retirement income fund (RRIF) or an annuity by December 31. (Or face tax on the entire amount of your retirement savings.)
However, you can continue to make contributions right up to December 31.
Be aware that if you turn 71 in 2013, you don’t have the option of making payments until the end of February 2014 and claiming them on your 2013 taxes.
Pre-Retirement RRSP Strategies
There may be a few strategies that you can use if you want to maximize your RRSP deduction and retirement income.
If you have a large carry-forward amount, consider contributing the entire amount and spreading the deduction in retirement to reduce overall income and taxes in retirement.
If you have a spouse or partner who hasn’t turned 71 as of December 31, you can continue to contribute to a spousal RRSP, provided your spouse has contribution room.
Even if you have no carry-forward RRSP contribution room, but have current year earned income that will generate RRSP contribution room in the following year, you should consider a final December over-contribution before closing your RRSP.
To take advantage of the contribution room, you can make a contribution during December, before the RRSP is officially closed.
Since the contribution is being made in December and the current year’s RRSP room has been maximized, an over-contribution penalty of 1% per month applies on any amounts in excess of $2,000.
Be sure to talk to a financial & estate planner to ensure you’re capitalizing on your RRSP contributions and returns to increase your retirement income.