A Registered Retirement Savings Plan gets special treatment when it comes to settling an estate. So what do you need to know about your spouse’s retirement savings, should they suddenly pass away? Julie Seberras, Senior manager of Wealth Planning Support, joins Kim Parlee for this Ask MoneyTalk about how RRSPs and other retirement savings can roll over to you in case a spouse dies.
Most of us spend a good chunk of our lives saving for retirement. But what if something unexpected happens? What does that mean for our family and for our partner? Julie Seberras is Senior Manager of Wealth Planning Support at TD Wealth. She's here for this edition of Ask Money Talk. Hi, Julie, the question is: We are nearing retirement. If one of us should die suddenly. How would the money in the RRSP be handled? This sounds like it's a couple we're talking about.
Yes, absolutely. So when we're dealing with couples, and first let's separate our RRSPs from RRIFs. So we're talking about RRSPs. This is where we're going to be accumulating the funds on a tax deferred basis up until a maximum of age 71, where those funds will then need to be converted to either a RRIF or annuity and then start drawing income. So if we're talking RRSPs where the spouse has been named as the beneficiary, these funds can rollover on a tax deferred basis, retaining their registered status. Now, let's say the RRSP does not have a named beneficiary. In this case, the surviving spouse and the executor of the estate can jointly elect to have it treated as though the surviving spouse was named as the beneficiary and then do that tax deferred rollover. However, I highly recommend that you review your beneficiaries if your intention is to name your status as the beneficiary that you have done so to avoid any delays or having to go through that process.
Yeah, get it down on paper so everyone understands what you want and what you need. That's for an RRSP. What about a RRIF?
So with RRIFs, that's when you've converted that RRSP, you've started to take the income. So with a RRIF, you can name your spouse as either a beneficiary or a successor annuitant. So when they're named as the beneficiary, those funds will retain their registered status and transfer over into the registered plan of the surviving spouse. From a tax perspective, this is going to be a bit of a two step process. The surviving spouse will be issued a tax receipt to show that they've received those funds. Then they're going to get another tax receipt that's going to offset any taxes payable so that the net result is no taxes payable at this point in time. If they are named as the successor annuitant, the surviving spouse is then going to take over that contract as is. So that includes the payment amounts, any payment frequency. The only thing that they can change on that contract would be that they can now name their own beneficiary for when they pass away. Now, regardless if you're a beneficiary or a successor annuitant, any time that you take that income into your own hands and withdraw it, it is going to be taxable, of course.
What about other forms of income? You know, when you hit that age, there's not just RRSPs which convert to RRIFs. You've got CPP, old age security, what happens with them?
So anybody who is eligible to receive Canada pension plan or Quebec pension plan benefits, there may be some eligibility for some survivor benefits for that spouse. So it's really going to come down to the age of the surviving spouse, whether or not they're receiving their own benefits and the amount of the benefit that the deceased was eligible for. Now, there is also a flat rate death benefit of $2,500 that will be paid. And, of course, whether it's the death benefit or ongoing benefits, they are, of course, taxable income. When it comes to old age security, typically the payments are going to cease when that individual passes away. There are some opportunities for the surviving spouse to get some benefits under old age security. And that would be where the surviving spouse is between the ages of 60 and 64, they meet the definition of low income. And really the intention with that is to bridge the gap until they start receiving their own old age security benefits starting at age 65.
Always great information. Julie, thank you so much. That's Julie Seberras joining us from TD Wealth. And if you any questions you'd like to ask MoneyTalk, just send an email to firstname.lastname@example.org with Ask MoneyTalk in the subject line, ask your question, and we will find the right person, like Julie, to answer that question and you can find the answer on moneytalkgo.com.