What is a matured RRSP?
A maturing registered retirement savings plan (maturing RRSP) is a Canadian retirement savings plan that is registered with the Canadian government and has entered the phase of being used to produce retirement income for the beneficiary .
A Registered Retirement Savings Plan (RRSP) is a defined contribution retirement savings and investment vehicle for employees and the self-employed in Canada, similar to 401 (k) plans in the US.
- A Registered and Expired Retirement Savings Plan (RRSP) is a Canadian retirement plan that is no longer in the accumulation phase (that is, it has expired).
- Instead, a matured RRSP is tasked with providing retirement income for its beneficiaries.
- As an individually owned retirement account, a mature RRSP will not automatically disburse retirement income. Instead, retirees must make periodic withdrawals from the account.
The basics of a matured RRSP
An expired RRSP is similar to a Registered Retirement Income Fund (RRIF) in that both pay retirement income to the beneficiary. However, an RRIF has been transferred to a carrier and re-registered with the government as a different registered financial instrument, making regular payments to the beneficiary. An overdue RRSP does not make payments. In order for beneficiaries to get money from an expired RRSP, they must make periodic withdrawals.
As with employee-sponsored 401 (k) retirement plans in the United States, assets in government-sponsored RRSP accounts grow tax-free and are not taxed on capital gains, dividends, or interest. Both delay paying taxes until retirement, when the marginal tax rate for most participants is likely to be lower than during the retiree’s working years.
RRSP expiration options
An RRSP legally expires on December 31 of the year in which the plan participant reaches the age of 71. At that point, an expired RRSP can be converted to one or a combination of three expiration options:
- Change some or all of your RRSP assets to an RRIF and start receiving minimum annual payments from the RRIF account.
- Use part or all of your RRSP account to purchase an annuity and begin receiving taxable payments.
- Make part or all of the RRSP account, document the withdrawal on that year’s income tax return, and pay the resulting income tax.
Note that an RRSP participant does not need to wait until age 71 to begin receiving payments from their accounts, as long as the RRSP is converted to an RRIF or annuity at any time before the expiration date of the plan.
RRSP, TFSA and other sources of retirement income
After its inception in 1957, the RRSP was the only government-sponsored retirement plan available to Canadians for more than half a century. That changed in 2009 when the Tax Free Savings Account (TFSA) went into effect.
Canada’s TFSA is somewhat comparable to the Roth IRA in the US Both are tax-exempt and funded with after-tax money. Both provide tax-free growth, and the funds, including earnings, are tax-free upon withdrawal. While the goal of both the RRSP and the TFSA is the same, to help Canadians save money, each is a unique savings vehicle with different characteristics.
According to a Survey 2018, 51% of Canadians have or expect to have an RRSP as a source of income for retirement, compared to 32% for the more recently established TFSA. Yet 57% of Canadians, especially older respondents, still cite government pensions and government benefits as the main source of their current or future expected retirement benefits. Employer-sponsored pension plans were also frequently mentioned.