{"id":1042,"date":"2022-12-12T04:02:51","date_gmt":"2022-12-12T04:02:51","guid":{"rendered":"https:\/\/financialadvise.ca\/?p=1042"},"modified":"2024-07-31T19:38:50","modified_gmt":"2024-07-31T19:38:50","slug":"is-an-rrsp-really-worth-it","status":"publish","type":"post","link":"https:\/\/financialadvise.ca\/is-an-rrsp-really-worth-it\/","title":{"rendered":"Everything that you need to know about RRSP"},"content":{"rendered":"\n[et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<p><span style=\"font-weight: 400;\">Are you ready to take control of your financial future and build a robust retirement plan? Look no further than the Registered Retirement Savings Plan (RRSP), a valuable financial tool designed to empower Canadian taxpayers to save for retirement while enjoying significant tax benefits. Here\u2019s everything you need to know about RRSPs, from contributions and deductions to withdrawals and strategies for maximizing your retirement savings.<\/span><\/p>\n<p><b>What is an RRSP?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">An <\/span><a href=\"https:\/\/www.canada.ca\/en\/revenue-agency\/services\/tax\/individuals\/topics\/rrsps-related-plans\/registered-retirement-savings-plan-rrsp.html#\"><span style=\"font-weight: 400;\">RRSP (Registered Retirement Savings Plan<\/span><b>)<\/b><\/a> <span style=\"font-weight: 400;\">is a government-regulated investment account that offers Canadian taxpayers a tax-efficient way to save for retirement. By contributing to your RRSP, you not only enjoy tax deductions but also the opportunity for your investments to grow on a tax-deferred basis. However, it&#8217;s essential to understand that any funds withdrawn from your RRSP are subject to taxation.<\/span><\/p>\n<p><b>What qualifies as earned income for your RRSP contribution room?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Your RRSP contribution room depends on your earned income, making it crucial to understand what qualifies as earned income. The following sources of income contribute to your RRSP room:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Net employment &amp; rental income:<\/b><span style=\"font-weight: 400;\"> This category encompasses income derived from employment, including benefits such as overtime and bonuses. However, it&#8217;s important to note that employment insurance (EI) received during periods of unemployment doesn&#8217;t generate RRSP contribution room. Rental income, after accounting for relevant expenses, also contributes to your RRSP room.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Business income:<\/b><span style=\"font-weight: 400;\"> If you&#8217;re a business owner, the income you earn after deducting any business losses becomes part of your earned income. But keep in mind that income from investments or dividends paid to you as the business owner doesn&#8217;t create RRSP room.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/www.canada.ca\/en\/services\/benefits\/publicpensions\/cpp.html\"><b>CPP (Canada Pension Plan)<\/b><\/a><b>:<\/b><span style=\"font-weight: 400;\"> While CPP disability benefits contribute to your earned income, other CPP benefits do not generate RRSP room.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Contribution room:<\/b><span style=\"font-weight: 400;\"> The earned amount of income is multiplied by 18% which gives the maximum deduction limit for the following year subject to an annual maximum. Unused RRSP rooms can be carried forward indefinitely. A taxpayer who has $11,000 in unused RRSP deduction limits from previous years and a new RRSP deduction limit of $17,000 for the current year could contribute $27,000 in the following year, and deduct that full amount from that year\u2019s taxable income. The over-contribution limit is $2000. The penalty is applied on over contribution @ 1%.<\/span><\/li>\n<\/ul>\n<p>\u00a0<b style=\"font-size: 17px;\">What investment options does an RRSP offer?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">An RRSP offers a wide range of investment options, including:<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Currency or Forex investments\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Bonds<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Exchange-traded funds (ETFs)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Stocks<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Mutual or segregated funds<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Mortgage<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Call\/put options<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Investment-grade gold and silver<\/span><\/li>\n<\/ul>\n<p>\u00a0<span style=\"font-weight: 400;\">While these options provide diverse opportunities for your RRSP investments, certain items cannot be held within your RRSP:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Shares of a corporation in which you or your family members hold more than a 10% stake<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Futures contracts or derivatives<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Art and antiques<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Additionally, employing a mortgage in your RRSP requires following specific procedures.<\/span><\/p>\n<p><b>What are the key contribution dates for RRSPs, and how can spousal contributions impact your retirement planning?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Contributions to your RRSP can be made until December 31st of the year in which you turn 71. Furthermore, you can contribute to your spouse&#8217;s or common-law partner&#8217;s RRSP if it&#8217;s advantageous for income splitting. However, withdrawals from a spousal RRSP can be attributed to the contributing spouse, limiting its effectiveness as a short-term income-splitting strategy.<\/span><\/p>\n<p><b>How are RRSP withdrawals taxed?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Withdrawals from your RRSP are considered taxable income. A withholding tax is applicable, with rates varying based on the amount withdrawn:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Up to $5,000: 10% withholding tax<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Between $5,001 and $15,000: 20% withholding tax<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Over $15,000: 30% withholding tax<\/span><\/li>\n<\/ul>\n<p><b>What are the beneficiary designations allowing for a possible rollover?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Following beneficiary designations for a deceased that allow a possible rollover.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Spousal or common law partner<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Dependent child\/grandchild having income below the basic personal amount. The child must withdraw the amount by the year the child turns 19. By annuitizing the tax burden is spread over the years until the child turns 19.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A child or grandchild with a disability could be named as a beneficiary and can be of any age. Alternatively, up to $200,000 can be transferred to RDSP.\u00a0\u00a0<\/span><\/li>\n<\/ul>\n<p><b>What options are available when your RRSP matures?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The RRSP matures before December 31st of the year in which the RRSP annuitant turns 71. There are three options available at maturity.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Annuity<\/b><span style=\"font-weight: 400;\">:\u00a0 RRSP could be converted to a registered annuity before the annuitant turns age 71.\u00a0\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/www.canada.ca\/en\/revenue-agency\/services\/tax\/individuals\/topics\/registered-retirement-income-fund-rrif.html\"><b>RRIF<\/b><\/a><b>:<\/b><span style=\"font-weight: 400;\"> The registered retirement income fund allows the continued tax deferral, without any further contributions. Annual withdrawals are mandatory right from the year it is established.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Cash: <\/b><span style=\"font-weight: 400;\">The entire amount saved in the RRSP can be withdrawn as cash which results in this amount to be added in the income. This is generally the lesser desired option, provided the amount saved is small.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The RRSP is most effective when a taxpayer earns income at a higher tax bracket while working, and is likely to be in a lower tax bracket during the retirement years. The compounding effects of reinvested tax savings generated by contributing to an RRSP can be very beneficial. The withdrawals from RRSP are not taxed when used for a First-time Homebuyer plan and Lifelong Learning Plan.\u00a0<\/span><\/p>\n<p><b>How can RRSPs help first-time homebuyers?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Under the First-Time Homebuyer Plan (HBP), each spouse can withdraw up to $35,000 to use for the purchase of a qualifying home. To be eligible, the funds must have been held in your RRSP for at least 90 days before the withdrawal. It&#8217;s important to note that you or your spouse should not have owned a home in Canada in the previous four years, including the current year. Importantly, owning a rental property does not disqualify you from utilizing the HBP since it is not considered a personal home.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Repaying the withdrawn amount under the HBP is a key aspect to consider. Importantly, repayments do not commence in the same year in which the withdrawals are made, nor do they start in the immediate year following the withdrawals. In practical terms, this means that if you make an HBP withdrawal in 2021, your first HBP repayment will be due in the 2022 RRSP contribution year.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This essentially provides a window that extends up to 60 days into 2023 for making your initial repayment. It&#8217;s worth noting that you don&#8217;t need to have available RRSP room for these repayments, and you cannot assign spousal RRSP contributions as HBP repayments. Keep in mind that the RRSP room utilized for HBP withdrawals cannot be regained.<\/span><\/p>\n<p><b>How does the Lifelong Learning Plan (LLP) for educational funding through RRSPs work?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The <\/span><a href=\"https:\/\/www.canada.ca\/en\/revenue-agency\/services\/tax\/individuals\/topics\/rrsps-related-plans\/lifelong-learning-plan.html\"><span style=\"font-weight: 400;\">Lifelong Learning Plan (LLP)<\/span><\/a><span style=\"font-weight: 400;\"> is designed to help you invest in your education or professional development, ensuring that you continue to grow throughout your life. Here&#8217;s a concise breakdown:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Eligibility:<\/b><span style=\"font-weight: 400;\"> To access the LLP, you must be an adult enrolled in a full-time education program.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Withdrawal limits:<\/b><span style=\"font-weight: 400;\"> Each spouse can withdraw up to $20,000 from their RRSP for eligible education expenses. If both spouses have sufficient funds in their RRSPs, the combined maximum allowable withdrawal increases to $40,000.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Annual withdrawal:<\/b><span style=\"font-weight: 400;\"> You can withdraw a maximum of $10,000 per year from one RRSP, which means a couple can access up to $20,000 per year for their education.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Repayment schedule:<\/b><span style=\"font-weight: 400;\"> The repayment of LLP withdrawals must commence in the earliest of either the fifth year after your initial withdrawal or the first year after you cease to be enrolled in an eligible educational program. This repayment is structured over a ten-year period.<\/span><\/li>\n<\/ul>\n<p><b>How do Group RRSPs work?\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Many employers offer <\/span><a href=\"https:\/\/www.nbc.ca\/personal\/advice\/savings-investment\/how-group-rrsps-work-are-they-really-beneficial.html\"><span style=\"font-weight: 400;\">Group RRSPs<\/span><\/a><span style=\"font-weight: 400;\">, where they contribute to employees&#8217; RRSPs through payroll deductions. While employees may incur taxable benefits, these are offset by corresponding tax deductions. Additionally, some Group RRSP providers restrict the use of programs like the First-Time Homebuyer Plan and Lifelong Learning Plan for funds saved within the plan.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For personalized guidance on making the most of your RRSP and achieving your financial goals, reach out to <\/span><a href=\"https:\/\/financialadvise.ca\/contact\/\"><span style=\"font-weight: 400;\">Mehan Private Wealth at (587) 718-8001.<\/span><\/a><span style=\"font-weight: 400;\"> Our experts are ready to assist you in optimizing your financial future.<\/span><\/p>\n<p>\u00a0<span style=\"font-weight: 400;\">Important : This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.<\/span><\/p>\n<p><br style=\"font-weight: 400;\" \/><br style=\"font-weight: 400;\" \/><\/p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section]\n","protected":false},"excerpt":{"rendered":"<p>Are you ready to take control of your financial future and build a robust retirement plan? Look no further than the Registered Retirement Savings Plan (RRSP), a valuable financial tool designed to empower Canadian taxpayers to save for retirement while enjoying significant tax benefits. Here\u2019s everything you need to know about RRSPs, from contributions and [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":1252,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-1042","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Everything that you need to know about RRSP - Munish Mehan<\/title>\n<meta name=\"description\" content=\"Are you ready to take control of your financial future and build a robust retirement plan? 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Look no further than the Registered Retirement Savings Plan (RRSP), a valuable financial tool designed to empower Canadian taxpayers to save for retirement while enjoying significant tax benefits. 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