Retirement Planning
- What can I hold in my RRSP?
- What is a Locked-in Retirement Account (LIRA) or Locked-in RRSP?
- What is an RRIF?
- What is a Life Income Fund (LIF)?
- What is a Restricted Life Income Fund (RLIF)?
- What is a Restricted Locked-in Savings Plan (RLSP)?
- What is an annuity?
- What is a spousal RRSP?
- What would happen if my spouse were to withdraw from a spousal plan to which I contribute?
- Is there a minimum age limit for an individual to participate in an RRSP?
- How does the $2,000 RRSP overcontribution limit work?
- What are the next steps?
- What if I want retirement planning advice?
Locked-In Addendum are available in PDF format for you to download, view and complete.
What can I hold in my RRSP?BMO InvestorLine permits the following variety of investments in your RRSP:
- Cash
- Term Deposits and Guaranteed Investment Certificates receiving interest annually, such as those issued through Bank of Montreal
- Stocks and Bonds of corporations listed on a Canadian stock exchange
- Bonds and Debentures issued or guaranteed by the Government of Canada
- Bonds and Debentures issued by a province, municipality or Crown corporation
- Strip Coupon Bonds
- Equity-linked notes
- Rights and Warrants that can be used to purchase qualified investments
- Shares listed on a prescribed stock exchange outside Canada
- Units of a Mutual Fund trust, such as those offered by BMO Mutual Funds
- Covered calls, long calls and puts, LEAPs calls
- Mortgage-backed securities
- Gold and Silver certificates
BMO InvestorLine does not allow the following investments in your RRSP:
- Employee options to purchase stock
- Gold, Silver and other precious metals
- Commodity Futures or Contracts
- Listed personal property such as works of art and antiques
- Gems and other precious stones
- Land
- Bonds where the issuer is a wholly-owned subsidiary and the shares of its parent are not listed on a Canadian stock exchange
- Mortgages on commercial properties which you or a family member own
- Small business investments
- Uncovered Puts and Call Options
- Bonds or Debentures of a company whose shares are listed only on a prescribed foreign stock exchange even though the company's shares may be qualified
What is a Locked-in Retirement Account (LIRA) or Locked-in RRSP?
Legislation governing employer-sponsored pension plans generally provides for "portability" of pension rights. As a result, when an employee who is a member of a registered pension plan and, who in many cases is entitled to a deferred pension benefit, terminates employment with the pension plan sponsor/employer, he or she can request the transfer of the commuted value of the deferred pension benefit to a locked-in RRSP, also known as a LIRA. The term differs depending on the province in which the pension plan is administered, but the plans differ only in details.
A LIRA or locked-in RRSP is similar to an ordinary RRSP, except that it is governed by a "locking-in" agreement which ensures that the transferred pension funds and the subsequent earnings are used to provide periodic retirement income. In other words, it cannot be cashed-in or withdrawn in a lump sum before the specified retirement age. Some investors will have multiple LIRAs or locked-in RRSPs because they have worked at different corporations.
topWhat is an RRIF?
An RRIF is one of the most flexible investment vehicles for retirement. Most RRIFs are established on the transfer of RRSP assets when you reach 71. An RRIF is a vehicle for tax deferral similar to an RRSP, but RRIFs are subject to the same rules regarding qualified investments. You may not make new tax-deductible contributions to an RRIF. You must withdraw a minimum amount each year commencing the year after you establish the RRIF.
There is nothing to stop you from taking more than the minimum. However, if you do, any excess will be subject to withholding tax at source. The withholding tax will be taken into account when calculating your tax payable when filing your annual return.
One more thing about RRIFs and annuities. Don't wait until you are 71 to start planning what you are going to do with your RRSP – you will need some time to investigate your options. In fact, for those retiring early, you can start an RRIF much earlier than age 71. Some people use a portion of their RRSP assets to fund retirement before they are eligible to receive either CPP (Canadian Pension Plan) or OAS (Old Age Security).
Another thing you should know. Prior to the first payment being received from an RRIF, you may choose to use your spouse's age rather than your own to determine the minimum payout amount. Once made, that choice is permanent.
topWhat is a Life Income Fund (LIF)?
A LIF is a form of a RRIF to which you may transfer your locked-in retirement funds (the funds from a registered pension plan or a locked-in RRSP). A LIF is subject to essentially the same locking-in, survivor benefit and transfer option requirements imposed under pension benefit legislation as a LIRA or locked-in RRSP. It provides the pension plan member with the flexibility to defer the purchase of a life annuity until the end of the year in which he or she turns 80 (rather than 71 as is the case for holders of ordinary RRSPs.)
What is a Restricted Life Income Fund? (RLIF)
RLIFs were created to accept the transfer of locked in assets from a Life Income Fund (LIF), locked-in RSP contract entered into after May 8, 2008, or, under some circumstances, pension benefit credits. In the year that they turn 55, or in any subsequent year, individuals will be allowed to "unlock" up to 50% of the value of the RLIF by transferring it into a non-locked-in RSP or RRIF as long as this transfer happens within 60 days of the creation of the RLIF.
What is a Restricted Locked-in Savings Plan (RLSP)?
RLSPs are able to accept transfers from RLIF (Restricted Life Income Fund) plans for individuals who wish to return RLIF assets into a locked-in plan. Someone may want to make such a transfer because they do not want a steady stream of retirement income at the time.
What is an annuity?
An annuity is an investment vehicle usually offered by insurance companies and is designed to provide regular periodic payments to the policyholder for a specified period of time.
Annuity rates fluctuate with interest rates and generally, it is best to purchase an annuity when rates are historically high. If you purchase an annuity when interest rates are low, you may find that your income may not be sufficient for retirement.
Annuities are not flexible investments and once purchased, cannot be reversed.
topWhat is a spousal RRSP?
Rather than contribute to your own RRSP, you may contribute to your spouse's RRSP. The allowable contribution is determined based on your income, not your spouse's and is deductible in the calculation of your income. The contribution will use up some or all of your contribution room thus reducing for tax purposes, the amount you may contribute to your own RRSP. The principle advantage of this approach lies in future income splitting. If you believe that your spouse's marginal tax rate after tax credits during retirement will be lower than yours, then as a family unit, the total tax burden on retirement income can be reduced by having each spouse receive income in retirement from their own RRSPs.
What would happen if my spouse were to withdraw from a spousal plan to which I contribute?
Normally, a withdrawal by your spouse from his or her RRSP must be taken into the spouse's taxable income and is taxed at the spouse's marginal tax rate. However, there are a special set of rules known as "attribution" rules which provide that certain withdrawals from a spousal RRSP will be "attributed" back to the contributor of the funds. Essentially, any withdrawal from a spousal RRSP which has not yet matured will be attributed back to you if you have contributed to the spousal plan in the year of the withdrawal or the two preceding years.
In general terms, the attribution rules will not apply if at the time of the withdrawal:
- you and your spouse are living apart as a result of a marriage breakdown
- either you or your spouse are not a resident of Canada for tax purposes (There may be non-resident withholding tax issues to be addressed.)
- your spouse transfers, in general terms, the RRSP assets to an RRIF (and does not withdraw more than the prescribed minimum amount), or, transfers the RRSP assets to an annuity (which is not commuted for three years).
Is there a minimum age limit for an individual to participate in an RRSP?
No. As long as qualified income was earned in the previous year and a Social Insurance Number is available to register the plan, there is no minimum age restriction.
However, a self-directed RRSP at BMO InvestorLine requires the individual to be at least 18 years of age because of the contractual nature of securities transactions. Individuals who are under the age of majority can open an RRSP with BMO Bank of Montreal to invest in GICs instead.
topHow does the $2,000 RRSP overcontribution limit work?
Currently, individuals who were at least 18 years of age in the preceding year are allowed to over-contribute to their RRSPs by up to $2,000 without incurring the monthly 1% penalty tax. You cannot claim a tax deduction for the overcontribution in the taxation year it is made but you can wait until new RRSP contribution room is available in a future year and deduct the overcontribution in that year.
NOTE: For planholders with overcontributions in excess of $2,000 as at February 26, 1995, transition rules allow the excess to be kept and deducted against future RRSP contribution room (to a maximum of $6,000) rather than forcing immediate withdrawal of the excess.
topWhat are the next steps?
Ready to open a retirement account? Click here for your application form, or call us at
What if I want retirement planning advice?
BMO InvestorLine does not offer advice or recommendations. As an organization, BMO Financial Group can offer you a number of alternatives to meet your needs for investment advice. Through BMO Nesbitt Burns, Investment Advisors can work with you to address all your financial needs, including retirement planning, estate planning, insurance and your overall investment plan. BMO Nesbitt Burns Investment Advisors are committed to gaining a thorough understanding of your financial goals, evolving life circumstances and investment preferences to proactively address your financial interests and stay on top of your wealth management plan.
