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My sister has a 100,000. RRSP. She has only 2 months to live. She is on disability. Is there a difference if she takes out her RRSP now or wait till after her death if she is leaving her RRSP to her son. I feel like the tax implication would be the same.
Dear Joanne,
Thank you for reaching out, and I’m very sorry to hear about your sister’s situation. I know this is a difficult time, and I appreciate you taking the steps to understand her financial options clearly.
Regarding your question:
When your sister passes away, her RRSP will be fully taxed as income on her final tax return, unless it is transferred to a qualified beneficiary, such as:
- A financially dependent child or grandchild, or
- A spouse or common-law partner (which doesn't apply in your case)
If her son is not financially dependent on her due to a disability or other reason, then the full RRSP value ($100,000) would be taxed on her final return — likely at a higher marginal rate due to the lump sum.
If your sister withdraws the RRSP now, the amount would also be fully taxable to her personally, and likely taxed at a similar rate (depending on her other income). Withholding tax would apply at the time of withdrawal, but the actual tax could be higher or lower depending on her year-end tax situation.
So yes, you’re correct — in most cases like this, the tax impact is roughly the same, whether the RRSP is withdrawn now or included in the estate and taxed upon death.
However, two key considerations:
- Early withdrawal gives her more control over how the funds are used or gifted during her lifetime.
- If her son is financially dependent due to a disability, it might be possible to roll the RRSP to him on a tax-deferred basis, which could save a significant amount in taxes.