Payment Options and Tax Implications
Shortened life expectancy benefits can be:
- taken in cash (payable in the form of a cheque or direct deposit to your bank account);
- transferred to an RRSP, up until the end of the calendar year in which you turn age 71;
- transferred to a Registered Retirement Income Fund (RRIF); or
- a combination of these options.
Cash payments are subject to withholding tax and may require additional tax payments when you file your income tax return.
If you choose to transfer funds to an RRSP or RRIF, it's important to understand that the Income Tax Act limits the amount that can be transferred on a tax-sheltered basis. Any excess amounts are paid in cash and subject to withholding tax.