By Gigi Suhanic
National Post
Excerpt from FP Money
Saturday, February 21, 2004
Billboards, television, your accountant -- everyone seems to have the same message these days: Max out your RRSP. What, you don't have one? Get one now!
Adrian Mastracci, investment counsel and president of Vancouver based ‘fee-only’ KCM Wealth Management, says, “Typically, you can't get into a locked-in plan until age 55, and you usually get into the money by way of an annuity. It's more than likely, however, that you'll find you have to abide by the agreement you have with your company.”
For the vast majority of us, this is actually wise advice. The Registered Retirement Savings Plan is Ottawa's way to encourage the populace to beaver away money by promising to keep it from the taxman's clutches -- at least for now. But, of course, there's a catch -- dozens of them. Regulations are Byzantine, with many loopholes and pitfalls to trip you up. So, for the past week, we've invited you to send us your RRSP-related questions, which we then ran by financial advisors. Below are selected answers; lots more appear on our web site.
Question: Does Ontario tax law permit a locked-in RRSP account containing only small assets to be unlocked?
Answer: A locked-in RRSP is money transferred to you from your workplace pension plan when you leave the firm. Whether you can tap that pension money before retirement depends on the deal you have with your company.
"Typically, you can't get into a locked-in plan until age 55, and you usually get into the money by way of an annuity," says Adrian Mastracci of KCM Wealth Management in Vancouver.
But there are a few exceptions, though usually not in happy circumstances. If you work for the federal government or a federally regulated company such as an airline, for example, you can withdraw your cash early if you have less than two years to live.
Ontario provides several additional situations in which you can unlock locked-in accounts. The Financial Services Commission of Ontario (FSCO) makes allowances for specific financial hardships, such as the prospect of eviction or the need to cover medical costs. The "shortened life expectation provision" also applies.
Moreover, the FSCO has a policy specifically covering small account balances. You can withdraw money from a pension if you're at least 55 years old and the value of all you pension accounts is less than 40% of the "maximum pensionable earnings" for the year in which you apply to make the withdrawal. (Maximum pensionable earnings is a measure of the average national wage, and is adjusted every January. For 2004, it's $40,500.) That means you can dip into your pension if in 2004 you are 55 or older and your pension assets total less than $16,200 (40% of $40,500).
A cautionary note from Brian Donlevy at the FSCO: Be wary of companies that promise to unlock locked-in funds for a fee. They will charge you up-front but won't give you a refund if it turns out you don't qualify under the rules. "Here at the FSCO, we will help you fill out the forms," he says. "We do charge a fee but not until you access the money." The application fee is 1% of the amount you are entitled to withdraw, with a minimum of $100 and maximum is $500.
It's more than likely, however, that you'll find you have to abide by the agreement you have with your company, says Mr. Mastracci. "Find out all the terms and conditions and what flexibility there is. In most cases, there isn't any."
ONLINE EXTRA: More RRSP Insight >>
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