Managing Your Money

71 is the new 69 – the retirement income and tax rules have changed

If you’re age 69 to 72, changes to the Income Tax Act that were introduced in the 2007 Federal Budget included some new measures that will have an effect on how you draw your retirement income and the taxes you will be required to pay.  Previously, government rules required you to wind down your Registered Retirement Savings Plan (RRSP) by December 31 in the year you turn 69.

Now, thanks to the legislative changes, you do not have to wrap up or convert your RRSP until the end of the year in which you reach age 71.  But you should check the wording in your RRSP to be sure you can take advantage of the new rules.  For example, if your RRSP makes specific reference to the age limit being 69, the RRSP will have to be amended to increase the age limit to 71.  If the wording in your RRSP is more general in nature and only refers to the age limit as defined in the Income Tax Act, the RRSP does not need to be amended.*

For those of you past the age of 69 who have already converted your RRSP to a RRIF, you can transfer it to an RRSP and make contributions to the RRSP  until the end of your 71st year, or you can simply elect to stop receiving RRIF payments until your 72nd year.   The Canada Revenue Agency (CRA) has waived the minimum RRIF withdrawal requirement in 2007 for those turning 70 or 71 in 2007, and in 2008 for those turning 71 in 2008.

If you are 70 or 71 in 2007 and already receiving RRIF payments, you can choose to continue receiving them.  The income generated by the investments in your RRIF continues to be tax-deferred until you withdraw it from your plan.

By the way, if you are over age 71 and have a younger spouse, you can make contributions to a ‘spousal’ RRSP until the end of your spouse’s 71^st year and continue to receive the tax-saving/income-building benefits of a registered plan.

Tax rules, limits, and allowable deductions change frequently.  For these reasons, and for many others, it pays – in tax-savings and tax return accuracy – to seek the advice of a tax and financial professional.

*Canada Revenue Agency Website, http://www.cra-arc.gc.ca/tax/registered/budget2007-e.html

This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments.  Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.