Registered Retirement Saving Plans : RRSP

Registered Retirement Saving Plans : RRSP

This method of tax deferral is one of the most significant tax planning ideas available to Canadian taxpayers. By making contributions to a plan not later than 60 days after the current year ends, a deduction from income can be taken in the current year for the amount within certain limitations. An immediate tax saving results and tax refund can be reinvested or used currently for personal purposes. What’s more, income earned on contributions accumulates tax-free. When contributions are withdrawn, they are included in income; however, given that this will normally occur during the taxpayer’s retirement years, they will typically be taxed at a lower marginal rate as retirees tend to have less income than they did during their working years.


Tips on Becoming a Super Saver

If you were to rate your money savings abilities on a scale of one to 10, where would you be? Would you be average with a score of seven? Or, are you above-average because you have a huge nest egg and very little debt? Or would you be low on the scale because as with most Canadians you’re carrying a lot of debt and have a little savings? If you fall into this last category, here are some tips on how your can become a Super Saver.

Identify your goals: Where will you be financially in five, 10, 20 years: eating pâté or cat food? Seriously consider what you want and start putting your financial house in order.

Set up your savings plan: You may think you have very little extra money at the end of the month, but you may be surprised. Revisit your spending habits and cut back on those incidental and impulse buys. You may find that there is enough to put away for a rainy day and retirement, even if it’s just $5 a month. Next, create a pre-authorised savings program to automatically deposit the money into a TFSA and/or RRSP account.

Remember the power of compounding interest and you’ll quickly feel empowered. Also, find out if your company offers a group RRSP. This is a great way to become a Super Saver since your company will take your contribution at each pay before taxes. You end up paying less tax at source, which also reduces the sting at tax time.

Protect your investment: Would you be able to support your family and meet your financial responsibilities if you were in an accident or fell ill? A term insurance policy is an ideal solution because it’s inexpensive and it will meet your short-term needs.

Contribution Limits

Beginning in 1991, the new tax-assisted retirement savings system is based on a Comprehensive annual limit of 18% of earned income. This uniform limit of 18% of 18% earning applies to employer-sponsored registered pension plans (RPPS), deferred profit sharing plans (DPSPs), and registered retirement saving plans (RRSPs).

That is, annual aggregate contributions to these saving vehicles will generally be limited to 18% of the taxpayer’s earned income (based on the previous year’s income) up to a maximum dollar amount.


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