Canada

Canada

RRSP SEASON

Basic explanations on how the RRSP program works

By Mauricio Dreher

What is RRSP?

Since we are about to start the so called “RRSP Season”, it would make sense to talk a little bit more about it. So, please read below some basic explanations on how the RRSP program works.

A Registered Retirement Savings Plan (RRSP) is an investment account designed primarily for saving toward your retirement years. As a retirement savings vehicle, regulated by the Canadian government, RRSPs have special tax benefits. Your annual RRSP contribution can greatly reduce the amount of income tax you pay in that year, and the money you put away can have years of tax-deferred growth potential. You only pay tax on the amounts you withdraw.

Contributions to a RRSP can only be made by individuals with “earned income” taxable in Canada, which includes salaries, self-employment income, maintenance and alimony payments, and net rental income (but does not include income from pensions or investments).

CRA issues statements to individual taxpayers with their “Notice of Assessment” informing them of their RRSP contribution limit for the following year.

Do I need a RRSP?

The maximum monthly pension a Canadian can currently get from the Canada Pension Plan is just $1,114.17 (if taken at age 65, as of 2017). So, you shouldn’t rely on government pension plans alone for your retirement income. A RRSP can help you maintain your standard of living when you retire. In addition to this, your taxable income will be reduced each year by the amount of the eligible contribution. So, the more you contribute, the less income tax you’ll pay in the year that you make the contribution.

Can I withdraw money from my RRSP?

Although an RRSP is more effective as a long-term investment, you may withdraw all or part of it at any time. RRSP withdrawals are subject to tax and the terms of the investment you choose. But the important part is that your money is available if you need it. Withholding taxes apply on funds withdrawn from an RRSP except when funds are transferred from one RRSP to another, or when funds are transferred to a retirement income option such as a Retirement Income Fund (RIF).

What is the deadline for an RRSP contribution?

You have until March 1 (or February 29 in a leap year) to contribute to your RRSP. Once this date has passed, RRSP contributions are only deductible against your taxable income for the next (or any subsequent) year.

Have a nice RRSP Season.

Maurício Dreher

Mauricio has more than 15 years experience in the financial industry, having an internationally recognized certification as Certified Financial Planner. He works with Canfin Financial Group, offering Investments, Insurances, Mortgages, with emphasis in Tax Savings Strategies. Bus: (877) 422-6346 ext. 528 or Cell: (416) 876-3644.

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