Using an RRSP Beyond Age 69
If you have turned 69 this year, you must collapse your RRSPs before December 31 or risk having them deregistered. Since you can't have an RRSP after age 69(from 1998 onwards),how can you use an RRSP beyond age 69? By overcontributing to an RRSP while they can still make a contribution. The following example illustrates this strategy:Mary turned 69 in 1998 and will have earned income of $75,000 in that year. This income will create RRSP contribution room of $13,500 for 1999. Since she cannot have an RRSP in 1999, Mary cannot make an RRSP contribution of $13,500 in 1999 in respect of her 1998 earned income.
Mary can,however,make an RRSP contribution of $13,500 in December 1998 before she collapses her RRSP. A penalty of one per cent will be charged on $11,500 ($13,500 less allowable overcontribution limit of $2,000) for one month,i.e., December 1998.
The overcontribution problem disappears as of January 1999 when new contribution room becomes available on her 1998 earned income. She will therefore be entitled to a $13,500 RRSP deduction on her 1999 tax return. This results in a net savings,as follows:
| Tax saving from $13,500 RRSP contribution @ 50% marginal tax rate | $6,750 |
| Penalty for one month on overcontribution | ($115) |
| Net benefit in 1998. | $6,635 |