Do you pay taxes on RRSP after age 65 in Canada?
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- Updated On:29-Nov-2022
- Replies:1
Short Answer
Yes, if you retire by age 65 and you withdraw funds from your RRSP, such funds will be taxed at your marginal tax rate. For more details, go through the points listed here.
Detailed Answer
RRSP Canada
RRSP is Registered Retirement Savings Plan in Canada and we have covered a lot about this investment tool on our platform.
The main motive of contributing into RRSP is savings for your retirement. The average retirement age of Canadians is 65, more precisely 64.5 (according to Statistics Canada). It is to be noted that the amount you withdraw from your RRSP is taxable at your marginal tax rate.
Let’s find out the tax implication you will face after age 65.
Do you pay taxes on RRSP after age 65 in Canada?
For retirement, you can either withdraw a lump sum from your RRSP or transfer the funds to Registered Retirement Income Fund (RRIF) and set up an income stream or set up an annuity. The important rule is that you need to clear out the funds in your RRSP by the time you turn age 71.
If you cease working by age 65 and you take out money from your RRSP, be it lump sum or a partial withdrawal you must pay taxes on the amount withdrawn based on your marginal tax rate.
If you do not need any money after you reach 65, your funds in RRSP will start coming into tax radar from when you reach age 71.
Types of Income after age 65 that is taxable
- Old Age Security Pension (OAS)
- Canada Pension Plan (CPP)
- Retiring Allowance
- Registered Retirement Savings Plan Income (RRSP)
- Registered Retirement Income Fund (RRIF) Income
- Annuity payments
How to minimize taxes?
We have listed some tax credits available for Senior citizens in Canada:
- You can claim some of your medical bills as deductions from your assessable income.
- If you are 65 years and above and if your income is less than $89,422 then you can claim up to $7,713 as a deduction in your tax returns.
- You can set up an RRIF income stream or an annuity instead of withdrawing your RRSP as a lump sum.
- In addition to the above you may receive province specific tax credits, disability tax credit (if applicable) and home accessibility tax credit (if applicable).
RRSP and taxes
We have provided a general overview of how RRSP withdrawal works and tax applies.
It is important that you carry out a balanced approach by investing and withdrawing equally from a TFSA, non-registered account and RRSP to minimize tax liability.
You may contact a professional tax advisor or a financial planner to get more help with your finances.
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