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Investing

RRSPs & RRIFs

Retirement can be a wonderful time when you’re financially prepared for it. At Alterna we offer several services that can help you get the most out of your retirement funds.

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Frequently Asked Questions

RRSPs are government-approved, tax-deferred savings plans that help people save money for their retirement. Even if you contribute to a company or government pension plan, you can usually reap tax benefits by contributing to an RRSP.

An RRSP allows you to make tax-deductible contributions during high-income years. Then you receive income and pay taxes on the proceeds during your lower-income retirement years. As a result, the part of your income that you would usually pay to the government in taxes instead accumulates in a tax shelter as part of your RRSP investment.

The best way to show this is to use an example: The maximum RRSP deduction limit for 2010 is $22,000. However, if you did not use all your RRSP deduction limit for the years 1991-2009, you can carry forward the unused amount to 2010. Therefore, your RRSP deduction limit for 2010 may be more than $22,000. The maximum RRSP contribution limits for the past five years are:

YEAR

CONTRIBUTION LIMIT

2021

$27,830

2020

$27,230

2019

$26,500

2018

$26,230

2017

$26,010

2016

$25,370

2015

$24,930

The maximum limit for future years will be indexed for inflation. To find out your exact RRSP deduction limit, check your previous year’s income tax Notice of Assessment or call CRA Tax Information Phone Service at 1-800-267-6999.

The over-contribution allowance is $2,000. If you exceed this limit, you will incur a penalty of 1 percent per month from the time of your over-contribution.

The sooner you start contributing to an RRSP, the better off you will be at retirement. If you do not have a lump sum to invest at the beginning of the year, we can set you up with regular contributions that match your budget. Contributions can be little as $25 a month.

The earlier in the year you contribute to an RRSP, the more money you will eventually accumulate. For example, if you contribute $2,000 each February for the previous year's contribution, and you earn 5% interest, you will have $130,878 in 30 years. If you contribute the same $2,000 every February for the upcoming year's contribution and you earn the same 5%, you will have $139,522 in 30 years.

You have to pay tax on any money you withdraw from your RRSP. The exception is if you use the funds to buy your first home in accordance with the terms of the federal government’s Home Buyers Plan or go back to school in accordance with its Lifelong Learning Plan. But you’ll still need to put that money back in your RRSP eventually.

You can carry forward the unused portion of your annual RRSP deduction limit indefinitely. If you don't have the cash to make your maximum annual contribution, or if your RRSP deduction limit is growing larger with each passing year, you may want to consider an investment loan. This way you can make the full contribution and maximize your potential tax refund.

You can contribute to an RRSP in your spouse's name and still deduct the contributions from your taxable income. By making contributions to your spouse's RRSP, you are helping your spouse build retirement income.

A spousal RRSP will benefit you in later years if your spouse will be receiving a smaller retirement income than you. Contributing to a spousal RRSP in this way is called income splitting. The money that is growing in your spouse's RRSP will eventually be paid out as retirement income, but will be taxed at a lower rate due to their lower retirement income level.

Any contributions you make to a spousal RRSP reduce your annual RRSP deduction limit. Your contributions to a spousal RRSP do not affect your spouse's annual RRSP deduction limit.

In most situations it's best to place the extra funds into an RRSP and use your tax refund to pay down your mortgage.

Frequently Asked Questions

By the end of the year in which you turn 71, you must withdraw the money from your RRSP. To avoid facing a heavy tax burden by withdrawing it all at once, one option is to convert it into a Registered Retirement Income Fund (RRIF).

A RRIF is a tax-sheltered account that pays you a steady stream of income in retirement. It’s like an RRSP, but instead of putting money into it, you take money out of it.

Withdrawing from RRSP can result in a heavy tax burden, by transferring your RRSP funds into a RRIF, you avoid being hit with a large tax bill at age 71. With a RRIF, you only pay tax on the income you withdraw from it each year (you are required to withdraw a minimum annual amount). You can also continue to grow your money tax free by investing it in a range of options such as term deposits, mutual funds, stocks and bonds.

There is no minimum age for converting an RRSP to a RRIF, so you can convert as soon as you need retirement income. But you do have to convert your RRSP investments into some form of retirement income before the end of the calendar year in which you turn 71. You can make a contribution to your RRSP for that year as long as you contribute by December 31.

There are no tax consequences when you transfer your funds from an RRSP to a RRIF. The payments you receive from your RRIF are taxable at the same rates as RRSP withdrawals, but withholding tax is not automatically applied to minimum RRIF payments. Since your RRIF income is spread over your retirement years, so are the taxes. If you are over age 65, income received from your RRIF and other pensions qualifies for the Pension Income Credit, which can lead to tax savings.

You must take some taxable payments from the RRIF each year, except the year that you first open your RRIF. You can choose any payment level, as long as the total each year is at least equal to the mandatory minimum amount.

The minimum amount changes annually and is calculated through a government formula based on your age (or your spouse's age, if you so choose) and the total value of the RRIF at the beginning of the year.

There is no maximum payment level. With many RRIFs you can vary your payments up or down from year to year (as long as the minimum withdrawal is maintained). Obviously, the larger the payments you take out, the sooner your funds will be depleted.

Yes, you can choose to base your RRIF payments on your birthdate or your spouse's/common-law partner's birthdate.

If your spouse is younger, especially if younger than 71, your minimum payments will be much lower
If you select the age of the older spouse, your minimum payment will be higher without triggering a withholding tax at source
If both RRIFs are based on the same birth date, 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 choice when you applied for your RRIF, or if you marry or enter into a common-law partnership later, you can transfer your RRIF to a new RRIF based on your spouse's age.

The minimum required annual withdrawal from a RRIF is set by the Canada Revenue Agency (CRA) and increases each year based on your age. To check this year’s required minimums, see the CRA’s information on Receiving income from a RRIF.

The 2015 Federal Budget released measures to reduce the withdrawal factor for Registered Retirement Income Funds (RRIFs) for annuitants between the ages of 71 and 94.

Yes, these changes apply to all types of RRIFs.

These changes have been effective since January 1, 2015.

If you would like to request a change to your annual minimum payment amount you can:

Call the Alterna Bank Contact Centre at 1.866.560.0120

If you have already received your RRIF annual minimum payment, or choose not to adjust your remaining payments to reflect the new minimum, you may be eligible for re-contribution. Speak to one of our representatives more information to help you determine your eligibility for a RRIF re-contribution.

Yes. If you are eligible for a re-contribution, you may re-contribute any amount up to, but not exceeding the difference between the old minimum and the new minimum.

No, it is your responsibility to ensure that you are not over re-contributing to your RRIF(s). Alterna cannot track what other RRIFs you may have with other financial institutions. Alterna will only provide you with confirmation of the eligible re-contribution amount for any RRIFs held at Alterna Bank.

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† Financial planning, mutual funds and other securities are offered through Qtrade Advisor. Online brokerage services are offered through Qtrade Investor. Qtrade Advisor and Qtrade Investor are divisions of Qtrade Securities Inc., Member of the Canadian Investor Protection Fund. Financial planning and mutual funds are also offered through Qtrade Asset Management Inc., member MFDA.

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