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RRSP

waterfallFind out more about RRSPs

Do you have the right investments for the kind of retirement you want?

You might not. A Registered Retirement Savings Plan (RRSP) plan allows for tax-free savings during your working life, with a view to supplementing your retirement income.

 

Basic Notions

•  The amount invested in your RRSP every year is deducted from your taxable income, thus giving you a tax savings.
•  In addition, your RRSP savings continue to grow tax-free.
•  Upon your death, the plan can be transferred to your spouse without fiscal consequences.
•  Your RRSP can be used to help you buy a home (HBP).
•  It can also be used to go back to school (LLP).
•  Your RRSP must be transferred to an RRIF (Registered Retirement Income Fund) no later than December 31 of the year you turn 71.

 

Contribution Rules

•  Anyone under 71 with income earned in Canada may, regardless of their place of residence, contribute to an RRSP.
•  Annual contribution limit of 18% of income earned in the previous year.
•  Maximum for 2013: $23,820
•  Contributing to your employer’s retirement plan reduces the amount you can invest in your RRSP.
•  You may contribute to your own RRSP or to your legal or common law spouse’s RRSP.
•  If you do not use all of your contribution room for one year, you may carry the unused portion over to the following years.
•  See the “RRSP Deduction Limit Statement” section of the notice of assessment sent to you each year by the Canada Revenue Agency.
•  Excess contribution of $2,000 permitted.
•  You may contribute to your RRSP until December 31 of the year you turn 71.

 

Registered Retirement Savings Plan (RRSP) is a retirement plan that is registered with the federal government and that you or your spouse or common-law partner establish and contribute to.

Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is exempt from tax for the time the funds remain in the plan. However, you generally have to pay tax when you cash in or receive payments from the plan.

Primary investment options for an RRSP account:

•  Mutual Funds
•  Segregated Funds
•  GICs & Term Deposits

Other qualified RRSP investment options

If you have questions about investment choices for an RRSP account – that is not listed above – contact me for more information.

 

Types of RRSPs

 

Individual RRSP

Retirement plan registered in the name of the contributor. The investments and their related tax advantages belong to the contributor.

Consult the Notice of Assessment Canada Revenue Agency (CRA) sends you every year to find out the maximum amount you can deduct in your tax return.

•  No minimum age to contribute.
•  Possible over-contribution of $2,000 as of 18 years of age.

Spousal RRSP

Plan registered in your spouse’s name and to which you are contributing. As the contributor, you qualify for a tax deduction, but the RRSP investment belongs to your spouse.

The total amount contributed to your RRSP and to your spouse’s RRSP should not exceed the total deduction to which you are allowed.

If your spouse withdraws from his or her RRSP in the first 3 years following the deposit, the amount withdrawn will be added to your taxable income of that same year. After that 3-year period, your spouse will be taxed on any amount withdrawn from his or her RRSP.

•  Advantageous if your spouse’s retirement income is expected to be lower than yours.
•  Minimizes the couple’s tax exposure.
•  Contributions can be made until your spouse reaches 71 years of age.

Group RRSP

A group RRSP is considered to be a collection of individual RRSPs, since an individual contract is registered for each participating employee. Certain conditions regarding eligibility and funds withdrawal apply.

It is a popular regular deposit savings plan that allows employees of a company to build capital for retirement through regular salary deductions.

If you have a group RRSP and an individual RRSP, the total amount contributed should not exceed the maximum amount indicated in your Notice of Assessment sent by the CRA (Canada Revenue Agency).

This savings method requires your employer first be registered for the Desjardins Group RRSP service offer.

•  Optional: you choose whether or not you participate.
•  You determine the amount and choose the type of investment that’s best suited for you, such as Desjardins Funds, Guaranteed Investment Certificates (GICs) or a Regular Savings Account.
•  Immediate tax savings since your contributions are deducted from your taxable income right away.

Talk to your employer about it!

Self-Directed RRSP

An RRSP is self-directed if you establish and manage your securities portfolio yourself, or with the help of a broker.

Because of the administrative service charges, if the investments you choose are term savings or investment funds exclusively, perhaps the self-directed RRSP is not the best solution for you.

When a self-directed RRSP acquires or has non-eligible investments, you could be subject to a special 1% tax calculated at the end of each month on the market value of those non-eligible investments.