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CIFP RRC Exam study materials
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CIFP RRC Exam practice questions

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Question 1Retirement Planning

At what age can a Canadian generally begin receiving an unreduced Canada Pension Plan retirement pension?

  1. 70
  2. 67
  3. 60
  4. 65 Correct answer.

Explanation

The standard age for starting an unreduced CPP retirement pension is 65. A person may start as early as 60 with a permanent actuarial reduction, or delay past 65 to earn an increase.

Question 2Retirement Planning

Which statement best describes the Old Age Security pension?

  1. It is paid only to people who contributed to the CPP.
  2. It is a private registered savings plan.
  3. It is funded by payroll contributions from workers.
  4. It is a residence-based benefit funded from general tax revenue. Correct answer.

Explanation

OAS is a residence-based demogrant financed from general government revenues rather than a payroll-funded contributory plan. Entitlement depends on years of residence in Canada after age 18.

Question 3Retirement Planning

A client has 20 years of residence in Canada after age 18. What fraction of the full OAS pension is she generally entitled to?

  1. One-third
  2. Full pension
  3. One-quarter
  4. One-half Correct answer.

Explanation

OAS requires 40 years of adult residence for the full pension, and partial pensions are prorated at 1/40 per year. Twenty years therefore produces 20/40, or one-half, of the full amount.

Question 4Retirement Planning

In which year did the Tax-Free Savings Account become available to Canadian residents?

  1. 2007
  2. 2011
  3. 2009 Correct answer.
  4. 2013

Explanation

The TFSA was introduced in the 2008 federal budget and accounts became available in 2009. Each year since then has carried an annual contribution limit that accumulates for eligible residents.

Question 5Retirement Planning

What is the fundamental retirement planning purpose of a Registered Retirement Savings Plan?

  1. To provide tax-free withdrawals at any age.
  2. To shelter investment income from tax while accumulating retirement savings. Correct answer.
  3. To fund a registered education savings plan.
  4. To replace the need for CPP and OAS income.

Explanation

An RRSP allows contributions to be deducted from income while investment growth inside the plan is tax-deferred. Withdrawals are later taxed as ordinary income, typically in a lower-income retirement period.

Question 6Retirement Planning

Which of the following is a defined contribution pension plan feature?

  1. The plan must be funded solely by the employee.
  2. The retirement benefit depends on contributions plus investment returns. Correct answer.
  3. The plan is not subject to pension standards legislation.
  4. The employer guarantees a specific lifetime retirement income.

Explanation

In a defined contribution plan the contribution rate is fixed and the ultimate benefit depends on accumulated contributions and investment performance. Investment risk therefore rests with the plan member.

Question 7Retirement Planning

What is the primary tax advantage of a Tax-Free Savings Account?

  1. Contributions are deductible from taxable income.
  2. Withdrawals are taxed at capital gains rates.
  3. It reduces the OAS clawback threshold.
  4. Investment growth and withdrawals are not taxed. Correct answer.

Explanation

TFSA contributions are made with after-tax dollars, but investment income and qualifying withdrawals are entirely tax-free. TFSA assets also do not affect income-tested benefits such as OAS or GIS.

Question 8Retirement Planning

Which factor most directly determines the size of the required minimum RRIF withdrawal for a given year?

  1. The number of beneficiaries named in the will.
  2. The annuitant's age at the start of the year and the prior year-end value. Correct answer.
  3. The annuitant's marginal tax rate.
  4. The amount of CPP the annuitant receives.

Explanation

RRIF minimum withdrawals are calculated by applying a prescribed factor based on the annuitant's age to the account value at the prior December 31. The minimum is expressed as a percentage that rises with age.

Question 9Retirement Planning

A client converts an RRSP to a RRIF at age 65 with a December 31 balance of $500,000. Using an approximate minimum factor of 4.0%, what is the required minimum withdrawal for the following year?

  1. $10,000
  2. $25,000
  3. $20,000 Correct answer.
  4. $50,000

Explanation

The minimum is the prior year-end value multiplied by the prescribed factor for the client's age. Applying roughly 4% to $500,000 produces about $20,000 of required income for that year.

Question 10Retirement Planning

A 62-year-old client with a shortened life expectancy asks about starting CPP early. Which consequence should be explained?

  1. The pension is increased because of the early start.
  2. The pension is paid as a lump sum only.
  3. The pension is reduced permanently for the recipient's lifetime. Correct answer.
  4. The pension is unaffected by the start age.

Explanation

Starting CPP before age 65 permanently reduces the monthly pension, and the reduction is not restored later. The trade-off is more years of payments versus a smaller monthly amount.

Question 11Retirement Planning

A retired client has net income above the OAS recovery tax threshold. What is the practical effect?

  1. Part or all of the OAS pension is recovered through the tax system. Correct answer.
  2. The client loses RRIF deduction room.
  3. The client must repay GIS only.
  4. The client's CPP pension is suspended.

Explanation

The OAS recovery tax, often called the clawback, reduces or eliminates OAS for higher-income seniors. It is calculated on net income and recovered through the annual tax return.

Question 12Retirement Planning

What is the main consequence of contributing more than the available TFSA room?

  1. A penalty tax applies to the excess contribution each month it remains. Correct answer.
  2. The excess is automatically transferred to an RRSP.
  3. Nothing happens because TFSA contributions are unlimited.
  4. The excess is taxed as capital gains on withdrawal.

Explanation

Excess TFSA contributions attract a monthly penalty tax until they are removed or absorbed by new room. Advisors should track contributions and withdrawals carefully to avoid over-contribution.

Question 13Retirement Planning

Which statement correctly describes spousal RRSP contributions for income-splitting purposes?

  1. The higher-income spouse contributes and claims the deduction, while the lower-income spouse owns the plan. Correct answer.
  2. Each spouse must contribute to their own plan only.
  3. The lower-income spouse claims the deduction for contributions made by the higher-income spouse.
  4. Contributions are split equally between spouses by law.

Explanation

In a spousal RRSP the contributing spouse deducts the contribution but the annuitant spouse owns the assets. This shifts future withdrawal income to the lower-income spouse, subject to attribution rules.

Question 14Retirement Planning

A client withdrew funds from a spousal RRSP and the contributing spouse had contributed in the same year. What is the likely tax result?

  1. The withdrawal is added to the contributor's RRSP room.
  2. The withdrawal is attributed back to the contributing spouse. Correct answer.
  3. The withdrawal is taxed as a capital gain in the annuitant's hands.
  4. The withdrawal is tax-free.

Explanation

Attribution rules apply when spousal contributions are made in the year of withdrawal or the two preceding years. In that case the withdrawal is taxed in the contributor's hands rather than the annuitant's.

Question 15Retirement Planning

At what age must an RRSP be matured or converted to a RRIF or annuity?

  1. 69
  2. 72
  3. 71 Correct answer.
  4. 70

Explanation

Registered retirement savings plans must be matured by the end of the year in which the annuitant turns 71. Options include converting to a RRIF, purchasing an annuity, or withdrawing the funds.

Question 16Retirement Planning

What is the purpose of the Canada Pension Plan survivor's pension?

  1. To provide income to a deceased contributor's surviving spouse or common-law partner. Correct answer.
  2. To replace the deceased's RRSP.
  3. To provide a lump sum to the estate only.
  4. To fund a child's education.

Explanation

The CPP survivor's pension is a monthly benefit for a surviving spouse or common-law partner of a deceased contributor. It is distinct from the death benefit, which is a one-time payment to the estate.

Question 17Retirement Planning

A 70-year-old client has not yet applied for CPP. How is the pension affected?

  1. The pension is increased by a deferral premium for each month past 65. Correct answer.
  2. The pension remains at the age-65 amount.
  3. The pension is forfeited for the missed years.
  4. The pension is reduced because of late application.

Explanation

Delaying CPP past age 65 earns a permanent actuarial increase for each month of deferral, up to age 70. The increase is added to the monthly pension for life.

Question 18Retirement Planning

What is the key advantage of a prescribed RRIF over a regular RRIF?

  1. It permits tax-free withdrawals.
  2. It exempts the account from probate.
  3. The minimum withdrawal is based on the younger spouse's age. Correct answer.
  4. It allows unlimited contributions after age 71.

Explanation

A prescribed RRIF uses the younger spouse's age to calculate minimum withdrawals, which lowers the required amount. This preserves more tax-deferred growth when the annuitant is older than the spouse.

Question 19Retirement Planning

Which statement about the Guaranteed Income Supplement is accurate?

  1. It is funded by CPP contributions.
  2. It is an income-tested benefit for low-income OAS recipients. Correct answer.
  3. It is available to all Canadians regardless of income.
  4. It is taxable at the recipient's marginal rate.

Explanation

The GIS is an income-tested top-up available to OAS recipients with limited income. It is funded from general revenues and is not taxable.

Question 20Retirement Planning

A client wants to reduce the eventual tax on RRSP/RRIF assets passing to a surviving spouse. Which approach is most effective?

  1. Naming the spouse as a beneficiary of the will only.
  2. Naming the spouse as a successor annuitant on the RRIF. Correct answer.
  3. Transferring the RRIF to a TFSA.
  4. Withdrawing the entire RRIF now.

Explanation

Naming a spouse as successor annuitant allows the RRIF to continue in the spouse's name, preserving tax deferral. A mere beneficiary designation may instead require the proceeds to be included in the deceased's income.

Question 21Retirement Planning

A client aged 72 has a RRIF valued at $400,000 on January 1. Using an approximate factor of 5.4%, what is the minimum withdrawal for the year?

  1. $40,000
  2. $16,000
  3. $21,600 Correct answer.
  4. $24,000

Explanation

The minimum is the prior December 31 value multiplied by the prescribed factor for the annuitant's age. Applying about 5.4% to $400,000 yields roughly $21,600.

Question 22Retirement Planning

Which situation best illustrates a pension income-splitting opportunity for a retired couple?

  1. Splitting RRSP contributions between spouses.
  2. Splitting CPP benefits with a spouse.
  3. Electing to split eligible pension income with a spouse to reduce combined tax. Correct answer.
  4. Splitting OAS benefits with a spouse.

Explanation

Canadian tax rules permit eligible pension income, including certain RRIF income, to be split with a spouse. This can reduce combined tax when spouses are in different tax brackets.

Question 23Retirement Planning

A client has a large RRSP and expects a high retirement income. Which strategy best reduces the OAS clawback risk?

  1. Converting the RRSP to a TFSA immediately.
  2. Increasing CPP contributions.
  3. Deferring all RRIF withdrawals to age 90.
  4. Drawing down RRSP assets earlier to smooth taxable income. Correct answer.

Explanation

Drawing down registered assets before income peaks can smooth taxable income across retirement years. This may keep net income below the OAS recovery threshold in later years.

Question 24Retirement Planning

What is the effect of the CPP child's benefit?

  1. It is paid to a dependent child of a deceased or disabled contributor. Correct answer.
  2. It is paid only to children over 25.
  3. It replaces the survivor's pension for the spouse.
  4. It is funded from the child's own contributions.

Explanation

The CPP child's benefit provides monthly income to dependent children of a deceased or disabled contributor. It is separate from the survivor's pension paid to the spouse.

Question 25Retirement Planning

A client wants to leave RRIF assets to a financially independent adult child while minimizing probate. Which approach is most suitable?

  1. Naming the estate as the successor annuitant.
  2. Leaving the RRIF to the estate under the will.
  3. Naming the child as a direct beneficiary of the RRIF. Correct answer.
  4. Transferring the RRIF to the child during the client's lifetime.

Explanation

A direct beneficiary designation allows the RRIF proceeds to bypass the estate and avoid probate fees. The value is still taxable in the deceased's final return unless a rollover applies.

Question 26Retirement Planning

Which of the following best describes the tax treatment of investment income earned inside a Registered Retirement Savings Plan?

  1. Income is taxed at a flat 15% withholding rate each year
  2. Income is sheltered from tax while inside the plan and taxed on withdrawal Correct answer.
  3. Income is taxed annually at the contributor's marginal rate
  4. Income is permanently exempt from tax if held to age 71

Explanation

An RRSP is a tax-deferred vehicle: contributions may be deductible, and investment income compounds without annual taxation. Amounts are included in income when withdrawn, so the deferral ends at that point. This deferral is the core planning benefit of the account.

Question 27Retirement Planning

A client earns $90,000 and has $20,000 of unused RRSP deduction room carried forward. What is the maximum RRSP contribution that can be deducted for the current year?

  1. $18,000
  2. $16,200
  3. $90,000
  4. $20,000 Correct answer.

Explanation

Deduction room is the lesser of the annual dollar limit plus 18% of earned income and the client's available room. The client already has $20,000 of carried-forward room, and current-year room would be added on top. The question asks about the carried-forward amount available for deduction.

Question 28Retirement Planning

Which of the following is a characteristic of a Registered Pension Plan's defined benefit promise?

  1. The employer bears the investment risk of funding the promised benefit Correct answer.
  2. The member selects the investments and bears all market risk
  3. The benefit is limited to accumulated employee contributions
  4. The benefit depends solely on investment returns in the member's account

Explanation

In a defined benefit plan, the formula determines the pension, and the plan sponsor is responsible for funding any shortfall. Investment risk therefore rests largely with the employer rather than the member. This contrasts with defined contribution arrangements where the member bears the risk.

Question 29Retirement Planning

A client has $8,000 of TFSA contribution room and contributes $12,000 in a single year. What is the consequence?

  1. A penalty tax applies to the excess amount until it is removed Correct answer.
  2. The entire contribution is refunded automatically by the CRA
  3. The excess is converted into RRSP deduction room
  4. The excess is taxed at the client's marginal rate

Explanation

Contributions beyond available TFSA room are subject to a monthly penalty tax on the excess. The excess must be withdrawn to stop the penalty from continuing to accrue. The contribution is not simply taxed as ordinary income.

Question 30Retirement Planning

Which statement best describes the treatment of a TFSA withdrawal for contribution room purposes?

  1. The withdrawn amount creates a deduction against taxable income
  2. The withdrawn amount is added back to room immediately upon withdrawal
  3. The withdrawn amount is added back to room in the following calendar year Correct answer.
  4. The withdrawn amount permanently reduces contribution room

Explanation

Amounts withdrawn from a TFSA are restored to contribution room at the start of the next calendar year. Recontributing before that restoration can create an unintended overcontribution. TFSA withdrawals are not taxable and do not create deductions.

Question 31Retirement Planning

A client has a locked-in retirement account from a former employer's pension plan. Which statement about this account is accurate?

  1. It is identical to an RRSP and follows only the Income Tax Act
  2. It must be converted to a RRIF by age 65
  3. It can be withdrawn in cash at any time without restriction
  4. It is subject to pension legislation restrictions on access and unlocking Correct answer.

Explanation

Locked-in accounts arise from registered pension plan benefits and are governed by provincial or federal pension standards legislation. That legislation restricts when and how funds can be accessed or unlocked. Income tax rules apply as well, but they are not the only governing rules.

Question 32Retirement Planning

At age 71, a client's RRSP must be matured. Which of the following is an available option?

  1. Transfer the RRSP to a TFSA without using contribution room
  2. Leave the RRSP open with no further action
  3. Purchase an annuity or transfer the funds to a RRIF Correct answer.
  4. Convert the RRSP to a non-registered account with no tax

Explanation

At the end of the year in which the annuitant turns 71, the RRSP must be matured. Common choices are purchasing an annuity, transferring to a RRIF, or withdrawing the funds in cash. All options trigger tax consequences except eligible transfers.

Question 33Retirement Planning

Which statement about the pension income tax credit is accurate?

  1. It is a refundable credit available to every taxpayer
  2. It applies to eligible pension income, including certain RRIF income after age 65 Correct answer.
  3. It applies only to employment pension income and never to RRIFs
  4. It applies to all RRSP withdrawals regardless of age

Explanation

The pension income tax credit is a non-refundable credit applied to eligible pension income. Qualifying RRIF income received after age 65 is generally eligible, along with certain other pension sources. RRSP withdrawals are not eligible pension income.

Question 34Retirement Planning

A client receives a $30,000 eligible pension payment and has $5,000 of federal tax withheld. What is the purpose of the withholding?

  1. It is a prepayment of tax credited against the client's final liability Correct answer.
  2. It is a penalty for early withdrawal
  3. It is a fee charged by the plan administrator
  4. It satisfies the client's entire tax liability for the year

Explanation

Withholding tax on pension and RRSP/RRIF payments is an instalment of tax, not a final settlement. The withheld amount is credited when the return is filed, and the actual liability depends on total income. Any difference results in a refund or balance owing.

Question 35Retirement Planning

A client wants to minimize tax on RRIF income while ensuring steady cash flow. Which approach is most appropriate?

  1. Take the minimum required amount and supplement with TFSA withdrawals Correct answer.
  2. Transfer the RRIF to a non-registered account immediately
  3. Withdraw the entire RRIF in one year to pay tax once
  4. Defer all withdrawals until age 90

Explanation

Taking only the required minimum from the RRIF limits taxable income in a given year. Supplementing cash flow with TFSA withdrawals, which are not taxable, can reduce overall tax exposure. Large lump-sum withdrawals generally push income into higher brackets.

Question 36Retirement Planning

Which statement about the Canada Pension Plan retirement pension is accurate?

  1. The amount is reduced if the client also has RRIF income
  2. The amount depends on contributions and the age at which the pension starts Correct answer.
  3. The amount is based solely on the number of years lived in Canada
  4. The amount is the same for every contributor regardless of earnings

Explanation

The CPP retirement pension is calculated from contributory earnings and the age at which it begins. Starting earlier reduces the amount, while starting later increases it up to a limit. Other retirement income such as RRIF withdrawals does not reduce the CPP amount.

Question 37Retirement Planning

A client's spouse has a much lower marginal tax rate in retirement. Which strategy best uses pension income splitting?

  1. Transfer all RRSP assets to the higher-income spouse
  2. Withdraw the entire RRIF in the higher-income spouse's name
  3. Allocate eligible pension income to the lower-income spouse on the tax return Correct answer.
  4. Contribute to a spousal RRSP after retirement begins

Explanation

Eligible pension income can be allocated between spouses on their returns to reduce combined tax. The allocation is reported using the prescribed joint election. Shifting income to the lower-rate spouse lowers the total tax paid by the couple.

Question 38Retirement Planning

Which statement about the Old Age Security pension is accurate?

  1. It is funded entirely by employee and employer payroll contributions
  2. It is funded from general tax revenues and subject to a residence test Correct answer.
  3. It is paid only to individuals who have retired from employment
  4. It is available only to individuals who contributed to the CPP

Explanation

OAS is financed from general government revenues rather than a payroll fund. Eligibility depends on residence in Canada and age, subject to minimum residence requirements. It is separate from the CPP contributory system.

Question 39Retirement Planning

A client has a large RRSP and expects high retirement income. Which strategy best reduces the risk of an OAS recovery tax?

  1. Take larger RRIF withdrawals before age 65 to lower later income
  2. Contribute the maximum to an RRSP in the year of retirement
  3. Spread RRIF withdrawals and use TFSA income to manage annual taxable income Correct answer.
  4. Defer CPP to age 70 to increase guaranteed income

Explanation

The OAS recovery tax is based on net income, so managing annual taxable income is the key lever. Spreading RRIF withdrawals and relying on tax-free TFSA income can keep net income below the threshold. This approach preserves more OAS than concentrating income in a few years.

Question 40Retirement Planning

A client aged 72 has a RRIF valued at $400,000 on January 1. Using an approximate minimum factor of 5.4%, what is the minimum withdrawal for the year?

  1. $5,400
  2. $2,160
  3. $21,600 Correct answer.
  4. $40,000

Explanation

The minimum RRIF withdrawal is the January 1 value multiplied by the prescribed factor for the annuitant's age. Applying 5.4% to $400,000 gives $21,600. The factor increases with age, so the required percentage rises over time.

Question 41Retirement Planning

Which statement correctly describes the tax treatment of a spousal RRSP for income-splitting purposes?

  1. The contributing spouse claims the deduction, and the annuitant spouse reports withdrawals Correct answer.
  2. Both spouses split the deduction equally
  3. Withdrawals are always attributed to the annuitant regardless of timing
  4. The annuitant spouse claims the deduction, and the contributing spouse reports withdrawals

Explanation

In a spousal RRSP, the contributor uses their own deduction room and claims the deduction. The annuitant spouse is taxed on withdrawals, subject to attribution rules for contributions made in the same or prior two years. This structure shifts retirement income to the lower-income spouse.

Question 42Retirement Planning

A client withdrew funds from a spousal RRSP, and the contributing spouse had contributed in the same year. What is the likely tax result?

  1. The withdrawal is taxed to the annuitant spouse
  2. The withdrawal is tax-free
  3. The withdrawal is split equally between spouses
  4. The withdrawal is attributed back to the contributing spouse Correct answer.

Explanation

Attribution rules apply when a spousal RRSP contribution is made in the year of withdrawal or in the two preceding years. In that case, the withdrawal is included in the contributor's income rather than the annuitant's. Timing contributions carefully avoids unintended attribution.

Question 43Retirement Planning

Which of the following best describes the purpose of the CPP survivor's pension?

  1. It is available only to survivors over age 70
  2. It pays a lump sum to the estate regardless of relationship
  3. It provides income to the surviving spouse or common-law partner of a deceased contributor Correct answer.
  4. It replaces the deceased contributor's retirement pension indefinitely

Explanation

The CPP survivor's pension provides ongoing income to an eligible surviving spouse or common-law partner. The amount depends on the survivor's age and other CPP benefits. It does not replace the deceased's retirement pension in full.

Question 44Retirement Planning

Which statement about a prescribed RRIF is accurate?

  1. It is available only to clients under age 65
  2. It allows the annuitant to elect a level of income that qualifies for pension income splitting Correct answer.
  3. It must hold only guaranteed investment certificates
  4. It eliminates all taxation on RRIF withdrawals

Explanation

A prescribed RRIF permits the annuitant to elect a specified annual amount that is treated as eligible pension income for certain purposes. This can support pension income splitting and the pension income tax credit. The designation does not eliminate tax on withdrawals.

Question 45Retirement Planning

A client wants to leave RRIF assets to a financially independent adult child while minimizing probate. Which approach is most appropriate?

  1. Transfer the RRIF to a joint account with the child
  2. Purchase a new RRSP and name the estate as beneficiary
  3. Leave the RRIF to the estate in the will
  4. Name the child as beneficiary of the RRIF Correct answer.

Explanation

Naming a beneficiary directly on the RRIF can allow the proceeds to bypass the estate and avoid probate fees. The value is generally taxable to the beneficiary or estate depending on the designation. This approach supports the client's objective of minimizing probate.

Question 46Retirement Planning

Which factor most affects the amount of tax deferral gained from an RRSP contribution?

  1. The client's province of residence at contribution
  2. The type of financial institution holding the plan
  3. The colour of the investment account statements
  4. The number of years the funds remain invested before withdrawal Correct answer.

Explanation

Tax deferral grows with the length of time funds remain sheltered and compound. A longer holding period generally produces greater deferred growth. The institution and statement format do not affect the deferral.

Question 47Retirement Planning

A client is considering a RRIF versus an annuity for retirement income. Which statement is accurate?

  1. An annuity cannot be held inside a registered plan
  2. An annuity can provide a guaranteed income stream for life Correct answer.
  3. A RRIF guarantees a fixed income for life regardless of market performance
  4. A RRIF cannot hold mutual funds

Explanation

A life annuity provides a guaranteed income for the annuitant's lifetime, transferring longevity and investment risk to the insurer. A RRIF offers flexibility but does not guarantee a fixed lifetime income. Both can be held within registered arrangements.

Question 48Retirement Planning

Which statement best describes the treatment of a TFSA at death when a spouse is named as successor holder?

  1. The TFSA value is taxed as income to the estate
  2. The TFSA must be collapsed and the proceeds taxed
  3. The spouse becomes the holder and the TFSA continues to be tax-exempt Correct answer.
  4. The TFSA loses its tax-exempt status immediately

Explanation

A successor holder spouse assumes ownership of the TFSA, and the account retains its tax-exempt status. This differs from a beneficiary designation, where the proceeds may be paid out. The successor holder arrangement preserves the plan's tax advantages.

Question 49Retirement Planning

A client wants to move $60,000 from an RRSP to an RRIF without triggering immediate tax on the full amount at the time of transfer. Which statement describes the tax treatment of a direct RRSP-to-RRIF transfer?

  1. The transfer is tax-deferred because it is a direct transfer between registered plans Correct answer.
  2. The full amount is added to income in the year of transfer and taxed at the client's marginal rate
  3. The transfer is tax-free only if the client is at least 65 years old at the time
  4. Only 50% of the transferred amount is included in income in the year of transfer

Explanation

A direct transfer of funds from an RRSP to a RRIF is a tax-deferred rollover, so no income is recognized at the time of the transfer. Tax applies later as minimum or excess amounts are withdrawn from the RRIF. The client's age does not determine whether the transfer itself is taxable, although age affects the minimum withdrawal factor.

Question 50Retirement Planning

A client has $500,000 of unused RRSP contribution room and a marginal tax rate expected to be 48% this year but 30% in retirement. The client can contribute $40,000 this year. Which consideration best supports making the contribution now?

  1. Contributing now guarantees a higher RRIF minimum withdrawal in the first year
  2. The contribution reduces the client's OAS clawback threshold for the current year
  3. The deduction is worth more now, and tax-free growth continues until withdrawal Correct answer.
  4. The contribution eliminates the need to convert the plan to a RRIF at age 71

Explanation

An RRSP contribution generates a deduction worth the marginal rate at the time it is claimed, so deducting at 48% rather than 30% produces greater immediate tax savings. The funds then grow tax-deferred until withdrawal. The benefit depends on the rate differential and the length of the deferral period.