Weekly Tax Tips
Remember to Collapse Your RRSP if You Will Turn 71 This Year
30 Oct 2009
You can’t have an RRSP past December 31, 2009 if you’re 71 or older at year-end. So, prior to December 31, 2009, you must collapse your RRSP and pay tax on the fair market value of the plan’s assets at that time, purchase an annuity or transfer your RRSP assets to an RRIF. No tax is paid on the purchase of an annuity or the conversion to an RRIF.
If you will generate RRSP contribution room for 2010 because you have earned income in 2009, but you have to collapse your RRSP before the end of 2009, consider making an overcontribution to your RRSP in December, immediately before collapsing it. The amount of the overcontribution should equal $2,000 plus the 2010 contribution limit. A 1% penalty tax on the overcontribution in excess of $2,000 will apply for December 2009 — however, this will end on January 1, 2010 when the new contribution room becomes effective. The basic $2,000 overcontribution will become deductible when you generate additional RRSP room in the future and will never attract the 1% overcontribution penalty tax. Ask your BDO advisor if this type of planning makes sense for you.
If you must collapse your RRSP this year, you can still contribute to your spouse’s RRSP if you have contribution room and your spouse has not reached age 71 by December 31, 2009. This is an excellent way to build up your spouse’s RRSP.
This tax tip is a publication of BDO Dunwoody LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 30 Oct 2009.
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