Yearend RRSP strategies for RIF conversion

If you are age 71 this year, you are required to collapse your RRSP by December 31st and either transfer your funds to a RRIF or purchase an annuity. If opening a RRIF, you cannot make further RRSP contributions into it. What if you have employment income in 2008 and therefore qualify for an RRSP contribution in 2009?

To get around this problem, you have one last chance to make an RRSP contribution. Rather than waiting until the new year, make your “final” RRSP contribution into your RRSP before year-end (December 31st). By doing this, you may have over-contributed for the 2008 income tax year and the CRA will charge a penalty of 1% per month on the over contribution amount. However, as the contribution is made during the month of December, only one month’s penalty is charged, a small amount compared to the tax savings of making the final RRSP contribution to reduce your taxable income.

Starting January 1, 2009, you will no longer be subject to the over contribution penalty and you will have made a RRSP contribution while you still have an RRSP to allow you to take advantage of one more year’s contributions.