RRSP Quick Facts

To RRSP or not to RRSP?

If you can’t afford to contribute a large amount to an RRSP at the end of the tax year, don’t worry. By starting with just a small monthly contribution now, you’ll position yourself to have a more secure retirement later. Every purchase you make becomes an investment in your future. Join over one million people who have started. That’s because the sooner you invest, the more time your money has to grow. Consider setting up a savings plan that deducts a monthly or biweekly amount from your paycheque or chequing account. Ask us how.

Why invest in an RRSP?

Your contributions are tax deductible and could provide you with a tax refund. Investments in an RRSP grow tax-free. Consider making your RRSP contribution earlier in the year or even on a monthly basis. By contributing sooner than later, your money will have more time to grow tax-free. Earnings on RRSP investments aren’t taxed until withdrawn.

Don’t let RRSPs puzzle you! Here’s what you need to know:

  • How much you can contribute is determined by your RRSP contribution limit. You can find this information on your latest notice of assessment or by contacting the Canada Revenue Agency.
  • Unused contributions can be carried forward for an unlimited period. If you come into an unexpected windfall, you might consider using some of it to maximize your RRSP contribution or make up for missed contributions from previous years.
  • Wise investors use their tax refund to top up their RRSP or pay down their RRSP loan if they borrowed to make their RRSP contribution. RRSP loans can make a lot of sense if investors do not have cash on hand to make a contribution to an RRSP. Don’t borrow, however, unless you are able to make the payments.
  • Contributions to be deducted from the current year must be made within 60 days of year-end. But don’t wait until then — contribute early in the year to take advantage of tax-sheltered capital appreciation and interest accumulation.
  • Arrange a savings plan as soon as possible. By withholding source deductions and transferring amounts to a group plan, you get the benefit of the RRSP tax deferral right away instead of having to wait until tax time for a refund. If you don’t have a group plan at work, you can still make contributions before income tax is levied on your earnings. Talk to your financial advisor.

Taking care of yourself in retirement is something only you can do and it’s never too early (or too late) to start.

Dos and Don’ts of an RRSP

Do start contributing to RRSP as early as possible to benefit from compounding returns. Even a $50 monthly contribution is better than none at all.

Do meet with a qualified financial advisor to review how an RRSP could benefit you. An advisor can assist with strategies to maximize contributions such as RRSP loans.

Do remember that even if you are over age 71, you may have earned income and RRSP contribution room. If your spouse is under age 71 and you have income from a rental property or employment, you can make a spousal contribution and claim the deduction.

Don’t wait because you think you can’t afford it.

Do reap the benefits of tax breaks, but don’t make that your only goal—RRSP funds can be used for more than your retirement. First time home buyers can withdraw up to $25,000 under the Home Buyers Plan and full-time students can withdraw up to $20,000 over four years for training or education under the Lifelong Learning Plan.

Do cut down on unnecessary expenses. These savings can be used to invest in tax-deferred accounts such as an RRSP. Don’t forget your RRSP has to be dismantled in your 71st year. It can be converted to a Registered Retirement Income Fund with the provision that specific withdrawals be made annually, while taxes are deferred on the rest of the assets.

Don’t lose focus of your longer term investment plan with the short term volatility that can occur in the markets.

Do follow a disciplined, long-term investment strategy. A financial professional can clarify your investment objectives and select an appropriate asset allocation between the wide range of investment products available.


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