These practical tips are designed to help the money you worked so hard for go to the people (and causes) you love, potentially reducing stress.
Understanding what happens to a registered retirement savings plan (RRSP) after death can be important for two key reasons:
- to plan ahead so loved ones have clear direction when they need it most, and
- to help families navigate the estate settlement process during a difficult time.
The rules around taxes, beneficiaries, and timelines can be complex – especially when emotions are involved. Whether you’re managing an estate or preparing your own financial plan, understanding how RRSPs are treated after death can help reduce stress and uncertainty.
In most cases:
- The RRSP value on the date of death is included as income on the deceased person’s final tax return.
- If a spouse or common-law partner is the designated beneficiary, the deceased person may be able to defer the tax.
- Designating a beneficiary may avoid probate fees for the RRSP.
- Having no beneficiary designation means the RRSP funds go into the deceased’s estate and is divided up according to the Will.
What happens to an RRSP after death?
The account’s value at death is typically included as income on the deceased person’s final tax return, which can mean a significant tax bill. But you may be able to defer immediate taxation under certain situations.
How RRSPs are normally taxed:
An RRSP is designed to help Canadians save for retirement. Contributions may reduce taxable income today, while the funds within an RRSP may grow tax-deferred until withdrawn.
What changes after death:
When someone passes away, that tax deferral usually ends. In most cases, the value of the RRSP at the time of death is included as regular income on the deceased person’s final tax return.
For families, this can come as a surprise. Depending on the situation, the tax bill can be significant, especially if the value of the RRSP is large or if the deceased person had other income in their final year.
However, the exact timing and tax treatment can depend on who is designated as beneficiary and which province or territory the account was set up. That’s why understanding beneficiary designations and transfer options matters.
Who receives the funds of an RRSP after death?
After death, the funds of the deceased person’s RRSP are:
- paid to a designated beneficiary, or
- handled through the estate if no beneficiary designation was made.
Compare RRSP inheritance options
This table shows how the two RRSP situations are generally handled. Outcomes can vary based on individual circumstances.
| Situation | Designated beneficiary | No designation (Estate) |
|---|---|---|
| Who this applies to | Someone is designated directly on the RRSP, in the deceased’s Will, or by separate written declaration (spouse, common-law partner, child, charity, etc.) | No beneficiary is designated on the RRSP, in the deceased’s Will, or by separate written declaration. |
| What usually happens | Funds are paid directly to the designated beneficiary. | Funds form part of the estate. |
| Probate fees | Often avoided (except in Québec where there is no probate for notarial wills). | Usually require paying. |
| Administrative effort | Often simpler and more direct. | Can involve more paperwork, coordination and add delays. |
| Flexibility related to paying out the funds | Generally limited to paying out the funds directly to the designated beneficiary, or a trustee for a minor until they reach age of majority. | May provide more flexibility with complex distributions or where you want to control the distribution of funds over time. |
| Best suited for | Leaving funds directly to a person or entity. | Situations where the Will controls how assets are distributed or used to fund a trust. |
What does this mean for an RRSP holder?
Designating a beneficiary: This can help funds reach loved ones more directly. However, it’s important to consider how the tax may affect other estate assets.
In some families, this can create unexpected pressure. For example, if one child receives the funds from the RRSP as a beneficiary and another receives the family home through the estate, the tax on the RRSP could be paid from the estate. That can mean the person who inherits the home may need to help cover the tax bill, even though they didn’t receive any of the funds from the RRSP.
Situations like this are often unintentional. An advisor can help spot these kinds of outcomes, so families can consider whether adjustments are needed.
No designation: People might choose this if they want their Will or a trust to control how the RRSP is distributed (like splitting it among multiple people or holding funds in trust). This approach can involve additional time, fees and administrative steps before funds are distributed.
Are beneficiary designations rules the same across Canada?
No. The rules vary by province and territory, which can affect how you set up your RRSP beneficiary designations.
For most provinces and territories:
You can designate beneficiaries directly on your RRSP through your financial institution, in your Will, or through a separate written declaration.
For Québec:
Usually, you can’t designate beneficiaries directly on RRSPs unless the RRSP is held in a segregated fund contract or insurance GIC. Instead, you designate beneficiaries to receive the RRSP funds through your Will.
The exception: If your RRSP is a type of insurance contract (like insurance GICs/accumulation annuities, or segregated fund contracts), you can designate a person directly on the contract, in a separate document, or in a Will, even in Québec.
Have more questions? An advisor familiar with your jurisdiction’s rules can help confirm your beneficiary designations are set up correctly.
How do taxes work on an RRSP after death?
The full value of the RRSP is included as income on the deceased person’s final tax return when the owner dies. However, you may be able to defer the tax, so more money goes to loved ones.
The default rule: it counts as income
Usually, the Canada Revenue Agency (CRA) treats the value of the RRSP on the day the person died as income they earned that year. This amount is added to their final tax return, which can significantly increase their total tax payable (the full amount of tax they owe to the government for the year).
Because the value of the RRSP can be quite large, this extra income can be taxed a higher marginal tax rate. This means the government may take a larger portion of the savings than it would have if the person were still alive and withdrawing small amounts over many years.
How can the deceased defer tax on their RRSPs beyond death?
By leaving the funds of the RRSP to specific people:
- Designating a spouse or common-law partner as the beneficiary: they can transfer the funds of the RRSP into their own RRSP. This means no taxes are paid until the partner eventually makes a withdrawal later in life.
- Designating other qualifying beneficiaries (like financially dependent children or grandchildren, including those with a disability): Additional actions may need to be done to defer tax. Speak with an advisor to learn how.
Why this matters:
Deferring the tax helps preserve more of the RRSP’s value. It can help ensure that loved ones receive financial support for their long-term needs.
Keep in mind that deferral involves specific transfer rules, forms, and deadlines.
An advisor can help you:
- determine if tax deferral is available in your situation
- identify the right transfer option and timing
- ensure required paperwork is completed correctly and on time
- co-ordinate the decision with retirement, tax and estate considerations
Income earned after death
Sometimes, the RRSP may earn income or increase in value after death while the account is being settled. Because this growth happens after the person has passed away, the CRA treats it differently:
- Growth/earnings: These amounts are usually reported as income by the estate or the beneficiary, rather than on the deceased person’s final tax return.
- Loss/decrease in value: A form can be submitted to the CRA to adjust the deceased person’s final tax return.
Common misconceptions about RRSP taxes upon death
Tax rules can be confusing, especially during a difficult time. Here are some of the most common myths about how RRSPs are handled when someone passes away:
| Misconception | The reality |
|---|---|
| “The RRSP is taxed automatically at death.” | Financial institutions and the CRA don’t automatically tax the RRSP. Instead, the value of the RRSP is added to the deceased person’s final tax return. The amount of tax owed depends on their total income for that final year. |
| “The beneficiary always pays the tax.” | Usually, it is the deceased person’s estate that is responsible for paying any taxes owed. Exception: If eligible transfer rules apply (i.e. transferring directly to a spouse or common-law partner), then the tax may be deferred or handled differently. |
| “Everything is handled at once.” |
It’s a two-step process.
|
| “Tax is withheld by the financial institution.” | There is no withholding tax when the RRSP funds are paid out due to death. The entire account balance is paid out to the designated beneficiary, and the tax is settled later through the final tax return. |
What happens to a spousal RRSP after death?
Spousal RRSPs often cause confusion because the person who contributed to the plan isn’t the same as the person who owns it. Here’s what happens when someone passes away:
| Feature | If the owner (annuitant) dies | If the contributor (non-owner) dies |
|---|---|---|
| What happens to the account? | Account is usually closed and funds are paid out or transferred. | The account remains open in the owner’s name. |
| Contributions | No further contributions possible. | No further contributions possible, but the estate of the deceased contributor may be able to make one final contribution to help reduce tax on the deceased’s final tax return. |
| Three-year attribution rule | Attribution rules end at death. *Either move link here or add a learn more link below |
Attribution rules end at death. |
What does this mean for you?
In a spousal RRSP, the name on the account is the legal owner.
- If the contributor dies, the account generally continues in the owner’s name.
- If the owner dies, the RRSP is handled based on the beneficiary designation and applicable transfer rules.
If you’re unsure who the legal owner of the account is, reviewing your paperwork with an advisor can help clarify what happens to your account. Additional rules may apply and estate treatment can vary by province or territory.
Learn more: 10 things you need to do when your spouse dies
Why planning ahead for an RRSP can make a difference
Planning ahead can:
- reduce unexpected tax outcomes,
- make instructions clearer for loved ones, and
- help avoid delays during estate settlement.
For many people, this is about making things easier for loved ones later on.
Summary checklist for your RRSP
You don’t need to have everything figured out. Reviewing a few basics can make conversations easier and more productive.
Review the “Who gets it” paperwork: You can designate a beneficiary in three ways:
- on the standard financial institution forms of your account
- in a Will or
- by separate written declaration
Keep it updated: Especially after major life changes (graduation, marriage, mortgage, etc.). Make sure the person designated on the account reflects your current wishes.
Match intended distribution in the Will and estate plan: Beneficiary designations on your RRSP may override what is written in your Will. Make sure both reflect current wishes to avoid confusion and unintended outcomes.
Know your account type: Different rules apply for individual RRSPs versus spousal RRSPs.
Check local rules: Rules can vary depending on the province or territory.
When an advisor can help with an RRSP after death
Understanding the rules is one thing. Applying them to a specific family situation is often where it gets harder.
An advisor can help by:
- explaining how RRSP rules apply to your situation,
- clarifying required paperwork and next steps,
- coordinating retirement, tax and estate considerations.
For many families, having a conversation with an advisor can help make the next step feel more manageable.
More resources
If you’re supporting a loved one or settling an estate, these resources may also be helpful:
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This information is meant for educational and illustrative purposes only. Some conditions, exclusions and restrictions apply.
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