RRSP Brochure

A Registered Retirement Savings Plan is a government approved plan through which you save money for your retirement years. Your contributions, within limits, are tax deductible, and the income earned is tax sheltered. You can have any number of plans.

You are investing money when you can most afford it during your peak earning years - to build up a comfortable retirement fund.

Not only do you invest some money that would otherwise be paid in taxes, but the earnings of your plan are not taxed until you withdraw them. Since 100% of these earnings can be reinvested and compounded, the growth of your RRSP increases rapidly over the years.

Your retirement savings will also increase significantly if you make each RRSP contribution as soon as allowed, for example, early in the year.

The first stage of an RRSP is to accumulate retirement savings. The next stage is to provide retirement income. Your accumulated savings may be invested in a variety of options to provide a retirement income that can continue for life or to age 90. Only the retirement income payments are taxed each year as you receive them, thus spreading the taxation of your accumulated savings over your retirement years.

Anyone with "earned income" subject to Canadian taxation, including non-residents, may contribute to an RRSP. Even if you are not taxable, you should file a tax return to report your earned income and create RRSP deduction room.

You can make part or all of any contribution to a plan in your spouse's name. You, as the contributor, are still entitled to the tax deduction. Contributions can be made until the end of the year in which the plan-holder's 69th birthday occurs. An over-contribution can be carried forward beyond this year and deducted in subsequent years providing you have earned income on which to base the deduction.

For income tax purposes, currently a spouse is defined as a person of the opposite sex, to whom you are married or have lived with on a common-law basis for the last 12 months. This period can be less than 12 months if both spouses are the natural or adoptive parents of the same child, or if your partner has a child who is wholly dependent on you for support and over whom you have custody. Effective 2001, the definition of spouse will apply only to legally married couples. At the same time, "common-law partner" will be introduced, defining two persons, regardless of sex, who cohabit in a conjugal relationship and have done so for a continuous period of at least 12 months.  The common-law partnership definition applies until the cohabitation has ceased for 90 days.

Your RRSP deduction is based on your prior year's earned income. The following qualify as earned income:

• salary, wages, bonuses and taxable fringe benefits (minus union or professional dues and employment expenses claimed as deductions)

• taxable wage loss replacement or long-term disability income resulting from employment

• Canada Pension Plan disability benefits (only)

• net income from self-employment (minus current year business losses)

• net rental income from real estate (minus current year rental losses)

• taxable alimony or maintenance payments received

• royalties of an author or inventor

• net research grants

Your Notice of Assessment from Revenue Canada, received after filing your tax return, will state your RRSP deduction limit for the following year. Any time after receiving this Notice, you can also phone the Revenue Canada TIPS line listed in your telephone directory to confirm your deduction limit. The calculation of the amount will depend on whether you are a member of a pension plan, and if you are, the type of pension plan.

Your RRSP deduction limit (preceding paragraph) does not include special transfers to your RRSP.

The greater the future benefits provided by your pension plan, the less you will be able to deduct as RRSP contributions. This addresses the main objective of the Retirement Savings legislation - to create equality in the tax-sheltered retirement benefits available to all taxpayers, regardless of their type of pension plan, or whether they are self-employed, or employed but have no pension plan.

In addition to your RRSP deduction limit, there are a number of special deposits you can make to your RRSPS.

You can transfer lump sums DIRECTLY from a Registered Pension Plan or a Deferred Profit Sharing Plan (DPSP) to your RRSP.

You can transfer amounts DIRECTLY from another of your RRSPs or from your RRIF to your RRSP.

Until the end of the calendar year in which you turn 69, you can transfer DIRECTLY to an RRSP in your own name up to 100% of any payment from your RRIF in excess of the mandatory minimum payment amount for the year. Revenue Canada form T2030 can be used for this purpose.

A retiring allowance is a lump sum or sums paid to you by your employer, at or after your termination, in recognition of your loss of employment. Accumulated sick leave credits paid qualify under this definition but holiday pay, death benefits and pension benefits do not. The portion of a retiring allowance eligible for sheltering in your own RRSP can either be transferred directly (no income tax deducted), or up to 100% can be contributed in the year of receipt or within 60 days thereafter. No portion of a retiring allowance can go to an RRSP in your spouse's name.

The maximum retiring allowance that can be sheltered is:

• $2,000 for each full or partial calendar year of service with your current employer prior to 1996, plus

• an additional $1,500 for each full or partial calendar year of service prior to 1989 with your current employer, in which you were not a member of a pension plan or DPSP, or years for which your employer's contributions to such plans have not vested in you.

The transfer of a retiring allowance to an RRSP does not affect your RRSP deduction limit for that year.

Effective January 1, 1999 the subscriber under a Registered Education Savings Plan can transfer up to $50,000 of accumulated income from an RESP to an RRSP in the name of the subscriber or the subscriber's spouse. The following conditions must be met:

• The RESP must have been in existence for at least 10 years.

• All current and former beneficiaries under the RESP must be at least 21 years of age and not be eligible to receive education assistance payments.

• Only amounts transferred within the subscriber's RRSP deduction limit and deducted in that year will avoid taxation. There is a special 20% surtax on excess accumulated income withdrawn by the subscriber.

Part or all of your RRSP deduction limit can be contributed to RRSPs for your spouse.

Any amounts you contribute to RRSPs for your spouse are subject to a 3-year attribution period. (See Withdrawals from spousal RRSPS.)

If one spouse will be in a higher tax bracket in retirement, as much of the RRSP funds as possible should be accumulated in the name of the spouse who will be in the lower bracket. The income eventually created from the funds will then be taxed at that spouse's lower tax rate.

To set up a spousal RRSP, your spouse applies for a plan in his or her name, even though your spouse may not have any earned income. Although you make the contributions to the plan, the assets of the plan belong to your spouse. Even if you are over 69, you can contribute to an RRSP for your spouse until the end of the calendar year in which your spouse turns 69.

If your spouse also wishes to contribute to an RRSP based on his or her own income, a plan separate from the spousal plan is strongly recommended.

One final note - having RRSP funds in both spouses' names will ensure that both of you can qualify for the pension income credit by age 65 (see below).

If you don't claim your maximum RRSP deduction, you can carry forward the unused deduction room indefinitely. This applies whether or not you actually make a contribution. Your Notice of Assessment from Revenue Canada records any cumulative deduction room carried forward after 1990 in determining your maximum RRSP deduction for the current year.

If you don't have the cash to contribute now, you can make larger catch-up contributions in future years when you have the cash available. Perhaps you will even avoid higher rates of tax by making contributions in the future. But remember, you maximize your retirement savings by making each RRSP contribution as early as possible.

If you have the cash to contribute now, but expect your income to be taxed at a higher rate in the future, you can contribute now and claim the deduction in a future year. This strategy is not penalized as an over-contribution, as long as your contributions are within your deduction room. And it has the advantage of tax-sheltering the earnings on your contribution.

The official tax receipt should be filed with your tax return in the year of contribution, even if not deducted, and the amount reported on Schedule 7 of your tax return.

The pension income credit is a federal income tax credit of up to $160 (16% of the first $1,000 of qualifying income). Since provincial income taxes are a percentage of the basic federal tax, this will also save you an additional amount in provincial taxes. If your taxable income for a year is less than $29,590, the first $1,000 in qualifying payments may be tax free to you.

At any age:

• periodic payments from a pension or superannuation plan, including foreign pensions taxable in Canada

If you are 65 or over in a year, or regardless of age if received as a result of the death of your spouse:

• income from a RRIF, LEF, LRIF or annuity purchased with RRSP or DPSP funds

• interest earned on term certain (general) annuities

• Old Age Security

• any payments from the CPP or Quebec pension plans

• retiring allowances

• lump sum withdrawals from a pension or superannuation plan

• cash withdrawals from an RRSP

You may contribute any time during the year. Contributions made during the first 60 days of any year may be deducted for the current or the immediately preceding taxation year.

If you are contributing by mail, the plan issuer on or before the contribution deadline must receive your application and/or deposit.

Over-contributions are contributions that exceed your deduction room. An over-contribution can be made by an individual who was 18 years of age or over in the prior year, and can be carried forward indefinitely. The 1995 federal budget reduced the penalty-free RRSP over-contribution limit to $2,000 from the $8,000 that applied since 1991.

You are not forced to withdraw excess contributions of up to $8,000 made prior to February 27, 1995. Starting with your RRSP deduction for 1996 you had to deduct your over-contribution in excess of $2,000 before making any further RRSP contributions. It may take a number of years to reduce the over-contribution to $2,000.

If you make contributions that increase your over-contribution above $2,000, you will pay a 1% penalty per month on the amount in excess of $2,000. Non-voluntary (normally employer) contributions to group RRSPs based on current earnings are not taken into account until after the end of the year in which they are made. At that time your additional deduction room for the current year will reduce the excess.

Any excess contribution you cannot deduct may be refunded without additional taxation. You must receive a refund subject to the above penalty in the year you over-contributed, in the year the Notice of Assessment for that year is issued, or in the following year. However, if Revenue Canada can prove that at the time you made the contribution you had no reasonable prospect of being able to deduct it for that year or for the prior year, and that you made part or all of the contribution with the intent of withdrawing it tax-free, they can deem the refund of the over-contribution to be taxable to you. Therefore you should not intentionally make an over-contribution unless you are sure you will be able to use it as your RRSP deduction in one or more future years, based on earned income.

You can carry forward an over-contribution beyond the year in which you turn 69. You can deduct part or all of it in any subsequent year within your deduction limit.

Yes, but you cannot deduct interest on money you borrow to contribute to an RRSR You should not use an RRSP as security for a loan. If you do, you could be taxed on the value of the plan.

After the RRSP issuer has processed your RRSP contribution, you will receive an official receipt. This must be attached to your tax return to claim your deduction.

Credit unions, banks, trust companies, life insurance companies, investment dealers and mutual fund companies all sell RRSPS. While all RRSPs provide the same tax deduction, not all plans are the same. Each issuer offers one or more ways to invest your money, and the growth rates, terms, conditions and fees vary.

Before you invest in any RRSP, ask about deposit insurance protection. There is no insurance on mutual funds, nor on most investments commonly held in self-directed RRSPS.

There are three basic types of individual plans available: Deposit Type Plans, Mutual Funds, and Self-Directed Plans. The following is a short description of each plan but remember that plan features will vary among issuers.

Deposit-type RRSPs are the most common plans. They offer familiar savings options including saving accounts, term deposits or guaranteed investment certificates. The rate of interest may be variable, fixed or index-linked. Key choices include the term of the deposit (ranging from daily to multi-year); and frequency of interest calculations and payments to the RRSP (daily, monthly, annually, or end of term). Key considerations include the issuer's policy regarding early withdrawals (your investment may be non-redeemable for the term); and deposit insurance coverage.

There are money market funds, income funds and equity funds. The first is invested in short-term securities such as treasury bills and government and corporate notes. Income funds have the same investments from time to time, but predominantly invest in longer-term bonds and mortgages. Equity mutual funds invest in stocks. There are also balanced funds that hold all three types of investments.

The funds are divided into units. Unit values are updated frequently based on the market value of the investments.

Since mutual fund investments do and will fluctuate in value, they don't provide a guaranteed rate of return. Sales fees, called front-end or back-end loads, can be charged on the acquisition or redemption of units. In addition, all mutual funds pay management fees. When mutual funds are held in an RRSP, income or capital gains distributions are usually used to purchase additional units.

* Mutual funds are offered through Credential Asset Management Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured or guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Their values change frequently and past performance may not be repeated.

With this kind of plan, you can make all your own investment decisions within a wide range of qualified investments. A trustee does all the administration work for you. You can invest up to 30% in foreign (non-Canadian) investments.

Self-directed plans are suitable for those with considerable investment experience and ample time to manage the funds. This type of plan may be uneconomical for those with limited RRSP funds because of the normal administration and transaction fees.

Plans involving mortgages usually incur substantially higher fees. It is permissible to hold within your self-directed RRSP a mortgage on any property you own that is eligible for mortgage insurance, although this will result in additional mortgage insurance, legal and possibly appraisal fees. Generally, you should only do this with more than $25,000 of RRSP funds, and should plan for the mortgage to exist for more than 3 years. Locked-in RRSPs in some jurisdictions can be used for this investment, and more than one self-directed RRSP can invest in the same mortgage.

Group RRSPs have become popular in recent years as more and more employers make them available to their employees. They can have all the same investment options as the other types of plans. An individual account is maintained within the group RRSP for each participating employee. A group RRSP can also provide for an employee to contribute to an account in their spouse's name.

Contributions to a group RRSP by an employer form part of the employee's deduction limit. They are also taxable income to the employee, offset by receiving an RRSP contribution receipt. You may not be able to withdraw the employer's contributions and/or your own contributions, and the income thereon, as long as you remain in that employment.

Contributions to group RRSPs by employers and employees are usually voluntary. Employer contributions vest immediately. If employees contribute through payroll deduction, the income tax deducted from their pay cheque is reduced at the same time, recognizing the reduction in their taxable income.

When the employment terminates, you can usually transfer the funds from the group RRSP to an individual RRSP.

Capital gains or dividends earned in an RRSP increase its value. All of the funds eventually coming out of an RRSP must be declared as income for tax purposes. Therefore, you will eventually pay tax on 100% of any capital gains and a full rate of tax on any dividends realized within an RRSP. Compare this to investments held outside an RRSP. Only 75% of capital gains would be taxed and you would pay a reduced amount of tax on the dividends by being able to claim the dividend tax credit.

Always be sure to ask about fees before deciding on an RRSP Not all issuers charge fees, but many do. Here are a few of the most common charges:

Many issuers sell RRSPs through commissioned salespeople. The sales costs are often deducted from your contribution. Only the net amount is actually invested for you.

Instead of a front-end load, many mutual funds offer the option of a deferred sales fee if you close out the plan within a certain number of years. This can be a percentage of the original contributions or the value at redemption. The percentage usually decreases for each year you stay invested in the same group of funds, and reaches nil within a maximum of ten years.

This is an annual fee paid by the mutual fund to cover administrative costs including trustee fees, investment advisor fees and the cost of government reporting. Over a number of years, this can represent a significant reduction in the net yield from your plan.

Many issuers charge a flat fee on RRSP withdrawals, or if you transfer an RRSP to another issuer.

Look for the plan that has the best potential return for the risk you are prepared to take.

If there are fees involved, take them into account in comparing the anticipated annual growth. Remember, a front-end load reduces the amount available for investment.

If for any reason you prefer a short-term investment, make sure that your plan can be terminated quickly and at little or no cost.

To compare the earnings on guaranteed type RRSPS, don't look just at interest rates. Ask for the net annual yield.

The more you know about your RRSP before you invest, the better.

Under section 146(2) (c.4) of the Income Tax Act, an RRSP issuer cannot give you any benefits or advantages that are "conditional in any way on the existence of the plan". Allowable benefits are generally limited to the provision of administrative or investment services. Any other allowable benefit must go into your RRSP, and not to you or to a person with whom you are not dealing at arms-length.

The Income Tax Act allows you to transfer your RRSP between issuers at any time. However, if your RRSP investments are non-redeemable, the issuer may not permit a transfer until the term expires. The transfer must be made directly from one issuer to the other.

If RRSPs are included in property to be divided between spouses following marriage breakdown, all or part of an RRSP may be transferred between the spouses without income tax consequences. The transfer must be made pursuant to a court order or a written separation agreement, and Revenue Canada form T2220 must be completed to document the transfer.

Funds in most RRSPs can be withdrawn in whole or in part, depending on the original conditions at the time the plan was established. The money you withdraw is taxable and will be reported on a T4RSP by the issuer of your plan.

RRSP funds that have been transferred from a pension plan are subject to pension legislation. The funds may be in a Locked-in RRSP or Locked-in Retirement Account (LIRA), depending on the province. You may be restricted to purchasing only life annuities with these funds, and under your former pension plan there may be a minimum age requirement for such purchases. Some pension legislation allows Life Income Funds (LIFS) or Locked-in Retirement Income Funds (LRIFS) as alternatives to life annuities.

There are special rules for withdrawals from spousal plans. If you have contributed or contribute to any spousal plan in the year of a withdrawal, or in either of the two preceding years, the lesser of the funds withdrawn or the amount you contributed during this period will be taxable in your name. This is commonly referred to as the 3-year attribution rule. Spousal contributions within these 3 years are deemed to be the first spousal funds withdrawn, regardless of whether the funds withdrawn were actually contributed prior to the 3 year period. If the amount withdrawn is more than the amount contributed by you within the 3 years, your spouse declares the excess. To ensure a withdrawal is taxable to the registered owner and not the contributing spouse, You Should Wait Until The Third Taxation Year After The Last Contribution To Any Spousal Plan.

Form T2205 is available at the District Taxation Offices to help determine who is taxable.

The above 3-year period terminates on the death or non-residency from Canada of either spouse, or upon the legal separation of the spouses.

It also terminates if the RRSP funds are transferred to purchase an annuity. It does apply if they are transferred to a Registered Retirement Income Fund (RRIF) and more than the mandatory minimum payment amount is taken from the RRIF in any of the 3 years. The amount in excess of the mandatory minimum payment, to a maximum of the contributions within the 3 years, would be taxed in the hands of the contributing spouse.

Commencing in 1999, an individual may withdraw up to $10,000 per year from his or her RRSP without immediate taxation, to finance full-time training or higher education of at least 3 months duration for the individual or the individual's spouse. Full-time is defined as at least 10 hours of study per week. Disabled students can qualify with part-time enrollment. Withdrawals cannot exceed $20,000 over a 4-year period.

It is the financial institution's decision whether it will allow early withdrawals from non-redeemable investments. Withdrawals are not permitted from Locked-in RRSPs .

A tax deduction is not allowed for an RRSP contribution made less than 90 days before it is withdrawn under this provision.

You will be requested to repay (to any RRSP) the amount withdrawn, without interest, in equal payments over a 10 year period commencing in the year following the last year in which the student is enrolled full-time, or in the sixth year following the first withdrawal, whichever is earlier.

Any amount not repaid as requested will be added to the income of the plan-holder for that year. Special rules will apply if the RRSP funds are withdrawn and the student does not complete the educational program.

Before making a withdrawal for education, you should consider the loss of the compounded earnings on this amount for the period the funds will be out of your RRSPS. Even if you make the repayments as requested, there may be a substantial reduction in the value of your RRSPs at retirement.

You apply by completing Revenue Canada form RC96 with your RRSP issuer. No withholding tax will be deducted from a qualifying withdrawal. A T4RSP will be issued to you in the year of withdrawal.

Yes, when you withdraw money from your RRSP, government regulations require tax to be withheld as follows:

• 10% - on a withdrawal not over $5,000

• 20% - on a withdrawal over $5,000 but not over $15,000

• 30% - on a withdrawal over $15,000

The amount of tax withheld will be reported to you on a T4RSP and should be claimed on the "Total income tax deducted (from all information slips)" line of your tax return. You should remember that RRSP withdrawals are included in your taxable income, so the tax withheld will not necessarily cover the taxes payable due to the withdrawal. On the other hand, if you are not taxable, by filing a tax return you can receive a refund of the taxes withheld.

If you are a non-resident when you withdraw funds, non-resident tax of either 15% or 25% will be deducted depending on the tax treaty between Canada and your country of residence.

No, you must either purchase a retirement income option or withdraw your funds before the end of the calendar year in which you reach age 69.

If your spouse is the beneficiary of your RRSP, or inherits these amounts under your will, the proceeds can be transferred to an RRSP, RRIF or annuity for your spouse. He or she will not have to pay tax on the funds until they are withdrawn. If your spouse is over 69, he or she can use all or part of the funds to purchase a retirement income option.

If your beneficiary is a child or grandchild who was financially dependent on you, there are a number of options available for continued tax sheltering.

Following your death, your legal representative can arrange contributions to RRSPs for your spouse, and deduct those amounts on your final tax return. This applies to contributions for the year of death made within your RRSP deduction limit. The contributions must be made within 60 days after the end of the calendar year of your death.

Each eligible RRSP holder can withdraw, without immediate taxation, up to $20,000 to be used as part of a down payment for a qualifying residence. Income tax will not be paid on any portion of the withdrawal repaid to an RRSP before or during the 15-year repayment period explained below. The repayments will not be tax deductible.

The Home Buyers' Plan (hereafter referred to as the Plan) can only be used by first-time homebuyers. An individual qualifies as a first-time buyer if, during the year of the withdrawal(s) under the Plan and the four previous calendar years:

• the individual did not own a home that was the individual's principal place of residence, and

• if the individual is married, while married during the similar period the individual did not live in a home that was owned and occupied by the present spouse. However, use of the Plan by an individual's spouse prior to the marriage does not in itself disqualify the individual from participating; i.e. if the home then acquired has not been occupied by the individual during the marriage. "Spouse" includes a common-law spouse as defined for RRSP purposes.

An individual may participate in the Home Buyers' Plan more than once if all previous withdrawals were repaid prior to the current year and they otherwise qualify under the above definition of a first-time buyer.

The first-time homebuyer restriction is waived for disabled individuals or for a relative supporting a disabled individual. The disabled individual must qualify for the disability tax credit. The purpose of the Home Buyers' Plan withdrawal must be to acquire a home that is more accessible to, or better suited for the care of, the disabled person.

To utilize the plan, you must have entered into an agreement to purchase or construct a home that:

• is located in Canada;

• was not previously owned by you or your spouse;

• will be acquired by October I of the year following the year of withdrawal;

• is intended to be occupied as your principal place of residence no later than one year after its acquisition.

Mobile homes, co-op units, and shares in a co-operative housing corporation also qualify.

You will not be able to deduct any portion of an RRSP contribution that is withdrawn under the Plan within 90 days after it is contributed. For this purpose, all the contributions ever made to a particular RRSP are considered to be withdrawn on a first-in first-out basis. For instance, if you have an individual RRSP worth $5,000 to which you make an additional contribution, and in less than 90 days you withdraw $5,000 from this RRSP under the Plan, you will still be able to deduct the contribution.

Before making a withdrawal under this Plan, you should consider the loss of the compounded earnings on this amount for the period the funds will be out of your RRSPS. Even if you make the repayments as requested, there can be a substantial reduction in the value of your RRSPs at retirement.

You apply by completing Revenue Canada form T1036 with your RRSP issuer. No withholding tax will be deducted from a qualifying withdrawal.

1. You can withdraw from any number of RRSPs, with different institutions, as long as your total withdrawals do not exceed $20,000;

2. All withdrawals must be within the same calendar year, except if you make a withdrawal within a calendar year, one or more additional withdrawals requested by you within that year can be received in the January following;

3. Withdrawals can be made up to 30 days after the completion of a purchase;

4. Withdrawals by your spouse from a spousal plan will not be attributed to you; any amount not repaid by your spouse will be taxed in your spouse's name;

5. It is the financial institution’s decision whether it will allow early withdrawals from non-redeemable investments;

6. A withdrawal is not permitted from a locked-in RRSP or LIRA.

You are requested to repay (to any RRSP) the amount withdrawn, without interest, in equal payments over a 15-year period commencing in the second calendar year following the year of your withdrawal(s). Repayments made in the first 60 days following a calendar year can be treated as if they were made within the calendar year. On your income tax return, you will designate what portion of your total RRSP contributions are repayments under the Plan, and therefore not deductible from income.

If you repay less than the specified amount in a year, you will be taxed in that year on the portion you did not repay. If you repay more than the amount specified in a year, but not the whole balance of the withdrawal, your required repayment in subsequent years will be reduced.

If you die or become a non-resident, the balance which has not been repaid or taxed will be taxed as a lump sum in that year. To provide relief from this lump sum taxation, upon your death your surviving spouse can take over your repayment or alternative income inclusion schedule.

This Plan is attractive to retirees who qualify as first-time homebuyers. Each qualifying spouse can use up to $20,000 of his or her RRSP funds toward the purchase of a residence. If you don't make any repayments you will be taxed, on the amount withdrawn, evenly over 15 years. However, perhaps you plan to withdraw at least this amount from your RRSPs in each of those years anyway. These withdrawals would be taxable. By utilizing this Plan, you get the use of up to $20,000 now, you pay no additional tax in the year of the withdrawal or the following year, and then you (or your surviving spouse) pay the tax with devalued dollars over 15 years thereafter.

Regular contributions to an RRSP will result in a substantial accumulation of savings. When you desire income, you can invest your savings in one or more of three retirement income options. You can have any number of each option.

The Income Tax Act provides three retirement income options:

• Registered Retirement Income Fund (RRIF)

• Term Certain Annuity to Age 90 (TCA 90)

• Life Annuity

RRIFs and life annuities provide an income that can last for the lifetime of you or your spouse. TCA 90s last until you or your younger spouse turn 90.

Funds that have been transferred from a pension plan are usually subject to pension legislation. You may be restricted to purchasing only life annuities with these funds. Some provinces have approved Life Income Funds (LIFS) and/or Locked-in Retirement Income Funds (LRIFS) for these funds, as alternatives to life annuities.

There is no longer any minimum required age for the purchase of a retirement income. You must purchase your retirement income before the end of the calendar year in which you turn 69. You can make a contribution to your RRSP for that year as long as you contribute by December 3 1.

There is no tax consequence when transferring your RRSP funds to a RRIF or an annuity. You only report for tax purposes the resulting payments as received. Since the income is spread over your retirement years, so is the tax liability. If you are 65 or over in the year, your retirement income qualifies for the Pension Income Credit. Also, if both you and your spouse have separate retirement incomes, this splitting of income may reduce your taxes.

Neither RRIF nor annuity payments qualify as earned income. Annuity payments cannot be transferred to an RRSP. RRIF payments in excess of the mandatory minimum payment amount may be transferred DIRECTLY to an RRSP in your name until the end of the calendar year you turn 69. This might enable you to reduce the value of a RRIF to deposit insurance limits.

Income tax may be deducted from RRIF payments, but not annuity payments.

The withholding tax is at the same rates as with direct RRSP withdrawals based on the amount of an individual payment from the RRIF. It applies to the full amount of any payments taken from your RRIF in the same calendar year the RRIF is opened. Thereafter, it only applies to the portion of a RRIF payment in excess of the mandatory minimum payment amount for the year.

You should convert your RRSP funds to a form of retirement income if:

• you need more cash in regular periodic payments, or

• you are 65 or over in the year and need the qualification for the Pension Income Credit, or

• you will pay a reasonable rate of tax on the income now, but may be in a higher tax bracket or subject to the Old Age Security clawback in later years.

The best time to purchase annuities is when interest rates are at the peak of a cycle.

The mandatory minimum payment from a RRIF cannot be sheltered from taxation. Therefore, you should take into consideration that purchasing a RRIF before the mandatory conversion age will increase your taxable income.

You cannot contribute directly to a RRIF. Funds can be transferred from an RRSP, another RRIF, a Registered Pension Plan, or a commuted RRSP annuity.

Some RRIFs are similar to continuing an RRSP, with the exception that you must take some taxable payments from the RRIF. You can choose any payment level, as long as the total each year is at least equal to the mandatory minimum amount. There is no maximum payment level. With many RRIFs you can fluctuate your payments up or down above the minimum from year to year. Obviously the higher the payments you take, the sooner your funds will be depleted. RRIFs can continue for the lifetime of the holder or their spouse.

You can elect to base your RRIF on your spouse's birthdate. You must make this election at the time you apply for your RRIF.

• If you choose the age of a younger spouse, your minimum payment will be lower; much lower when your spouse is younger than 71.

• If you select the age of an older spouse, your minimum payment will be higher without triggering withholding tax at source.

• If both RRIFs are based on the same birthdate, when one spouse passes away the survivor can combine two or more RRIFs into one, rather than having to continue with separate RRIFS.

If you didn't make this election when you applied for your RRIF, or you marry later, you can transfer your RRIF to a new RRIF based on your spouse's age.

You don't have to take any payment from a RRIF in the calendar year it is first funded. In subsequent years, there is a mandatory minimum payment that changes annually based on your age (or your spouse's age if you have elected) and the total value of the RRIF at the beginning of the year.

If your age (or your spouse's age if you have elected) is less than 71 at the beginning of the year, the minimum payment you must receive is calculated by subtracting the age at January I from 90, and dividing the result into the value of the RRIF at the beginning of the year. This formula produces an increased payment each year.

If the age at the beginning of the year is from 71 to 77, the minimum payment depends on whether the RRIF was first funded before or after January 1, 1993.

Investment Choices

RRIFs are available in all the same types as RRSPs, including self-directed. The actual investments in a self-directed RRSP can be transferred to a self-directed RRIF. Shorter-term investments provide some protection against the future inflation of interest rates.

Ask about fees, deposit insurance protection and estate preservation on any RRIF before you invest. RRIFs are fully transferable between issuers.

A LIF holds funds locked-in under pension legislation. It is a non-commutable RRIF to the end of the year the holder turns 80, by which time the remaining funds must be used to purchase a life annuity. The same mandatory minimum payments apply as with a RRIF, however with a LIF there is also a maximum payment amount per year to ensure a certain remaining percentage of value at age 80. LIFs are available in all provinces except PEI.

A LRIF holds funds locked-in under pension legislation. It is a RRIF, non-commutable for life. Conversion to an annuity is not mandatory, but is an option at any time. The same mandatory minimum payments apply as with a RRIF, however there is also a maximum payment amount per year to ensure the LRIF continues for the lifetime of the holder. It is available only under Alberta, Saskatchewan and Manitoba pension legislation.

The TCA 90 provides regular periodic payments that can continue until your 90th year. If your spouse is younger than you, the TCA 90 can be purchased to continue to your spouse's 90th year. As an alternative to an annuity with a fixed rate of return, some issuers offer TCA 90s on which the yield and payments are periodically adjusted with changes in interest rates.

A life annuity provides a series of regular payments that will continue for at least the rest of your life, no matter how long you live. There are two basic forms of life annuities:

A single life annuity with no guaranteed period gives the highest initial life annuity payments, but only for your lifetime, with no further payments after your death (see Guaranteed Payments below).

This annuity provides payments that will continue for the longer lifetime of either you or your spouse. The payments can continue to the last survivor at the full amount, or they can reduce by any stipulated percentage on your death, or the death of either spouse. Providing for such a reduction will provide higher payments while both spouses are alive, and provide a payment stream that relates to what actually happens to living costs.

Any life annuity can be purchased with a guaranteed period to ensure that either you or your beneficiaries get back all of your original investment (plus full interest if you wish) even if you live only a short time. The longer the guaranteed period (it can be to age 90), the lower your payments.

In addition to the reducing Joint and Last Survivor option described above, you have other options in choosing a payment stream that may suit your circumstances, including:

You can integrate your RRSP annuity with Old Age Security. You will receive substantially increased annuity payments until age 65, at which time the payments will reduce by the maximum OAS entitlement at the time you purchase the annuity.

This increasing income option provides annuity payments that either increase by 1, 2, 3 or 4% automatically each year, or increase based on the return of a specified group of assets. This provides you with some protection against inflating living costs. Choosing this option does, however, substantially reduce your payment in the early years.

The RRIF and the TCA 90 are designed to repay the full investment and all earnings to you or your beneficiaries. If your RRIF is invested in mutual funds or equities, you have the risk of losses.

With a life annuity, there is a risk that all of your capital and its earnings may not be repaid to you by the time payments cease on your death. Purchase of a guaranteed period can eliminate this risk.

In most provinces your investment in a credit union, bank or trust company RRIF or TCA 90 will be covered by the same deposit insurance fund that covers RRSP deposits.

Most life insurance companies are members of a consumer protection plan that is intended to safeguard their RRIFS, or the life annuity income, should a life insurance company fail to meet its obligations.

A RRIF can be terminated and the full value taken in a lump sum provided the funds are not invested in a non-redeemable term, and the wording of the contract does not prohibit commutation. Commutable annuities can also be purchased. You will have to accept a lower yield on a commutable annuity in exchange for this option.

The commuted value of a RRIF can be used, without taxation, to directly purchase an annuity. The commuted value of an RRSP annuity can similarly be used to invest in a RREF. This flexibility might be valuable should there be further legislative changes in the future affecting the retirement income options.

If we ever again experience extremely high yields on life annuities, as in 1981, having this flexibility would allow you to convert part or all of your RREF to the high annuity yield for the rest of your life.

The terminated value of a RREF in excess of the mandatory minimum payment amount for the year can be transferred directly to an RRSP in your name provided you are not past the year in which you turn 69. This enables you to terminate the mandatory income from a RREF. It also enables you to set up a new RREF based on your spouse's birthdate.

With a life annuity with no guarantee, the payments cease upon death. If you purchase a TCA 90 and you die before age 90, or if you die within the guaranteed period of a single life annuity, payments can continue to your spouse for the remainder of the guaranteed payment period, or until his or her death.

With a RRIF, your spouse, if named the successor annuitant, can take your place without tax consequence and make his or her own decision on the income and payout term. If your spouse is named beneficiary, he or she can transfer the balance of your RRIF, without taxation, to a RRIF or annuity in his or her name, or to an RRSP if he or she is not beyond 69.  The references to spouse above include common-law spouse.

If your estate or someone other than a spouse or a dependent child or grandchild is the beneficiary, the remaining value at that time (with a life annuity this is the discounted cash value of the remaining guaranteed payments), will be paid in a lump sum to the estate or beneficiaries. This lump sum is taxable on your final tax return.

If your beneficiary is a physically or mentally handicapped child or grandchild who was financially dependent on you, part or all of the remaining value can be transferred, without taxation, to an RRSP, RRIF or annuity in the child's or grandchild's name, or taxed in his or her name. If the beneficiary is an able-bodied child or grandchild under 18 who was financially dependent on you, part or all of the remaining value can be transferred, without taxation, to a Term Annuity to Age 18, with annuity payments taxed in the child's name over that period.

All RRSP issuers can get approval to offer RRIFs and TCA 90s. Only life insurance companies offer life annuities, although they can be arranged through most insurance agencies.

Because of the wide variety and the fact that the available yields change frequently, it is wise to obtain the help of a financial advisor before selecting your retirement income option(s).

The selection of a retirement income option depends entirely on your personal situation (health, present income and tax brackets, cash requirements, desired inflation protection or estate preservation, etc.). You may often select more than one of the options to create your retirement income package. With a RRIF you can choose your own investments and change your payment amount from time to time. Your funds may or may not last for life, depending on the payment amounts you choose. You can have your RRIF funds fully covered by deposit insurance.

Life annuities provide an income for life and require no ongoing decisions. In comparison to a life annuity, the TCA 90 usually provides slightly lower payments in exchange for a long guaranteed period. Some TCA 90s are also covered by deposit insurance. The TCA 90 and the RRIF provide good estate preservation; should you pass away and not leave a spouse, the remaining balance will be paid in a lump sum to your estate or other beneficiaries.

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