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Current government regulations require that you close your Registered Retirement Savings Plan (RRSP) by the end of the calendar year in which you turn age 71. Whether you’ve been making contributions for a few years or several decades, you have several options when it comes to the funds in your closed plan. You could take the entire amount in cash, but this is often the least popular choice because it usually results in a large income tax bill in the year the RRSP is closed.

The most popular option is to convert your RRSP to a Registered Retirement Income Fund (RRIF). You could describe a RRIF as an RRSP in reverse. Instead of making contributions, your money is distributed to you over time. You can withdraw any amount whenever you wish, provided it exceeds a certain annual minimum. That minimum is based on a percentage of your RRIF’s total value, as well as your age or your spouse’s age, depending on how you set up the RRIF. Your investments grow tax deferred as long as they remain in the RRIF, but you pay tax on the withdrawals.

Another option is to purchase a life annuity*. Basically, you provide a lump sum in exchange for a lifelong guaranteed income stream. Payments are usually made monthly and are fixed for the term of the annuity. The amount of payment generated is based on several factors including your age, gender and the amount used to purchase the annuity.

It’s important to understand that you don’t have to choose either a RRIF or an annuity. You can choose a combination of the two and benefit from each. Your annuity portion can provide a predictable income stream, while the RRIF can give you a chance to exercise greater control over part of your assets.

If you turn 71 this year, you should have already started the process of winding up your RRSP. Most financial institutions require at least a month’s notice to complete the necessary transactions. Failure to wind up your RRSP by December 31 could result in the entire amount being converted to cash and considered income for that year. It would then be taxed accordingly.

Speak with your financial advisor for help in assessing your current situation and determining an RRSP conversion approach that makes sense for you.

Edward Jones, Member Canadian Investor Protection Fund.

To Retire Comfortably, Know Which Moves to Make — and When to Make Them

We all want to enjoy living a comfortable retirement. But to do so, we need to make different moves, and consider different issues, at different times of our lives.

To help illustrate this point, let’s look at three individuals:
Alice, who is just starting her career
Bob, who is nearing retirement
Charlie, who recently retired

Let’s start with Alice. As a young worker, she most likely has 40 years ahead of her until she retires. Yet she realizes that it’s never too soon to start saving for retirement, so she has already started contributing to her Registered Retirement Savings Plans (RRSPs) and company-sponsored retirement plan. And because Alice has so much time ahead of her, she has decided to invest aggressively, putting much of her contributions in growth-oriented investments, such as equities and equity mutual funds. The market will certainly have its “dips” in the future, which can cause her account values to rise and fall from year to year. But the longer Alice holds her investments, the less of an impact market declines should have on her RRSP and other accounts.

Now let’s turn our attention to Bob. Because he's within a few years of retirement, he has some key decisions to make. For one, he must decide whether to change the investment mix in his RRSP and other accounts. Because Bob doesn’t have much time to overcome market volatility and wants to maintain the gains he has already achieved, he may decide to become more conservative with his investments. As a result, he may choose to move some of his stocks to bonds and other fixed-income securities. But he doesn’t abandon all his growth-oriented investments. Bob realizes that he may spend two or three decades in retirement and will need to stay ahead of inflation.

Our final investor is Charlie, who recently retired. His biggest concern is outliving his financial resources. As a result, he may need to consider a variety of moves. For starters, he should determine when to start taking his Canada Pension Plan or Quebec Pension Plan (CPP/QPP) and when to begin taking withdrawals from his Registered Retirement Income Fund (RRIF). Charlie, like all investors, must convert his RRSP to an RRIF no later than December 31 in the year he turns age 71. After deciding when to start taking withdrawals from his retirement plans, he’ll also need to decide the appropriate amount to withdraw from his portfolio to help cover expenses. When he does, he will also need to adjust for inflation. In addition, he'll need to consider whether income guarantee solutions, such as an immediate life annuity or a segregated fund with a Guaranteed Minimum Withdrawal Benefit, would be beneficial to provide him with an income stream he can’t outlive. Finally, Charlie might need to rebalance his overall investment portfolio to provide himself with more income.

For help in making the types of choices described above, work with a financial professional. But in any case, you need to be prepared to take the right steps, at the right times, so you can live in retirement on your terms.

Member – Canadian Investor Protection Fund

Insurance and annuities are offered by Edward Jones Insurance Agency (except in Quebec). In Quebec, insurance and annuities are offered by Edward Jones Insurance Agency (Quebec) Inc.

This article was written by Edward Jones for use by your local Edward Jones Advisor.

The year may be almost over, but there may still be time to find ways to save on your 2011 taxes – and also adopt some tax-smart habits for the coming year and beyond. Here are some ideas you may want to consider.

Income splitting – If you are age 65 or older, you may be able to allocate up to one-half of qualified pension income to your spouse or common-law partner. Pension income can come from pension plans, Registered Retirement Income Fund (RRIF) payments or certain annuities. Accrued losses before year-end – If your investment objectives have changed or the underlying fundamentals of an investment have changed, you may want to consider selling the investment, which can trigger a capital loss and offset any capital gains you may have had, thereby reducing your overall tax bill.

RRSP contribution – The deadline is not until early 2012, but consider making your 2011 Registered Retirement Savings Plan (RRSP) contribution now if you haven’t already done so. By acting sooner rather than later, you can give the investments in your RRSP more time to potentially grow through compounding.

RESP contribution – Remember that you must put money into a Registered Education Savings Plan (RESP) before year-end to qualify for the 2011 Canada Education Savings Grant.

TFSA contribution – Don’t forget about the Tax-Free Savings Account (TFSA). Canadians 18 years of age and older can put $5,000 per year into a TFSA and benefit from tax-free growth on eligible investments held in the account. Consider taking advantage of this opportunity.

Charitable contributions – To qualify for many credits and deductions, including charitable contributions, you must complete these financial transactions before Dec. 31.

Speak with your financial advisor for more information on these and other year-end strategies.

Edward Jones, Member – Canadian Investor Protection Fund

Edward Jones does not provide tax or legal advice. Review your specific situation with your tax advisor and/or legal professional for information regarding, or issues concerning, the tax implications of making a particular investment or taking any other action.

With the cold temperatures, your thoughts may drift to fond memories of summer retreats at the family cottage. And while those thoughts may warm you up a bit, you don’t want to be left out in the cold if you’re not aware of the financial implica¬tions when you sell the family retreat or if you transfer ownership to your children this year.

Unlike with your home, transferring ownership of the family cottage to anyone other than your spouse may trigger a taxable capital gain on the appreciation in value during your ownership. You may want to consider leaving the property to your spouse. Doing this helps defer the tax bill until the property is sold or passed on to future generations.

In addition, there are a number of strategies that you can undertake to help reduce and potentially avoid the capital gains tax, including:

Selling and taking back a mortgage – If you decide to sell the cottage to your children, consider taking back a mortgage by offering your children a mortgage loan as payment for the purchase price. The capital gain can be spread over a period of up to five years. And you can forgive the mortgage in your will so your children will own the cottage without debt or paying taxes.

Transferring ownership while you’re alive – Transferring ownership of the cottage to a trust that designates your children as beneficiaries will trigger an immediate capital gain. But from that point on, your heirs are responsible for taxable gains. They won’t pay those taxes until they sell the property or transfer ownership.

Declaring the cottage as your principal residence – You can have only one principal residence for tax purposes. So if your cottage has gone up in value more than your home, consider designating the cottage as your principal residence, which isn’t subject to capital gains tax.

Buying life insurance – Family members can use the tax-free proceeds from a life insurance policy to help pay capital gains taxes on your cottage when you leave it as part of your estate.

If you plan to sell or transfer ownership of your family cottage this year, make sure your finances align with your goals. Doing so can help ensure you stay on track to reach them.

Edward Jones, Member – Canadian Investor Protection Fund
Insurance and annuities are offered by Edward Jones Insurance Agency (except in Quebec). In Quebec, insurance and annuities are offered by Edward Jones Insurance Agency (Quebec) Inc.
Edward Jones, its employees and Edward Jones advisors are not tax or estate planners and cannot provide tax or legal advice. You should consult a qualified tax specialist or lawyer for advice regarding your situation.