Matured RRSP

What Is a Matured RRSP?

A matured registered retirement savings plan (matured RRSP) is a Canadian retirement savings plan that is registered with the Canadian government, and which 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 investing vehicle for employees and the self-employed in Canada, similar to 401(k) plans in the U.S.

How a Matured RRSP Works

A matured RRSP is similar to a registered retirement income fund (RRIF) in that they 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, and makes regular payments to the annuitant. A matured RRSP does not make payments. In order for beneficiaries to get money out of a matured RRSP, they must make periodic withdrawals.

As with employee-sponsored 401(k) retirement plans in America, the assets in government-sponsored RRSP accounts grow tax-free and aren't taxed for capital gains, dividends, or interest. Both delay the payment of taxes until retirement, when the marginal tax rate for most participants is likely to be lower than during the retiree's working years.

RRSP Maturity Options

An RRSP legally matures on Dec. 31 of the year in which the plan participant reaches age 71. At that time, a matured RRSP can be converted into any mature option or a combination of the following:

1. Shift some or all RRSP assets into an RRIF and start to receive minimum annual payments from the RRIF account.
2. Use part or all of the RRSP account to buy an annuity and begin to receive taxable payments.
3. Cash in 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 into an RRIF or an annuity at any time prior to the plan’s maturity date.

RRSP, TFSA, and Other Retirement Income Sources

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 U.S. Both are tax-exempt and funded with after-tax money. Both provide tax-free growth and 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 distinct features.

According to a 2018 CBIC poll, 51% of Canadians have or expect to have an RRSP as a source of retirement income, compared with 32% for the more-recently established TFSA. However, 57% of Canadians, especially older respondents, still cite government pension and government benefits as the leading source of their current or future expected retirement benefits. Employer-sponsored pension plans also were frequently mentioned.