The main purpose of the Registered Retirement Savings Plan (RRSP), as its name states, is to encourage Canadians to save for retirement. An RRSP helps offset the decrease in income you can expect during retirement and also lowers your current income tax rate, making it an extremely popular savings vehicle. The many advantages of an RRSP have contributed to its success. But to make the most of it, you should be aware of certain rules and features.
An often-cited advantage is that an RRSP contribution can be deducted from taxable income. Not only does it reduce your income tax, but the decrease in net income may also enable you to receive government benefits or tax credits. But you should be aware that an RRSP is a tax deferral vehicle. The amounts you accumulate are tax sheltered, but only until you withdraw them from the account. Most likely your income will be lower after you retire, so it is generally more advantageous to wait until then to make withdrawals. It’s an easy-to-follow rule: less income equals less income tax. If you want to finance another type of project, such as a vacation or a vehicle purchase, you’re better off dipping into your Tax Free Savings Account (TFSA) or your non-registered account. For more information, consult our article on the TFSA.
You should also keep in mind that investment income earned in your RRSP is not taxable until it is withdrawn. That’s another reason to wait for the right time. Plus, your savings will grow much faster. Interest, capital gains and dividends accumulated in your RRSP are tax sheltered, enabling you to increase your savings more quickly. You can choose from two appealing strategies: contribute at the start of the year to avoid missing out on potential returns or opt for pre-authorize contributions (PACs) throughout the year, which can be advantageous in the event of stock market volatility.
The LLP and the HBP
Familiarizing yourself with the withdrawal rules is definitely a good way to ensure your RRSP grows steadily and you can make the most of your retirement when it arrives. That being said, you can now take advantage of your RRSP in other circumstances.
The Lifelong Learning Plan (LLP) enables you or your spouse to finance full-time training or education. Each of you may withdraw up to $10,000 a year, to a maximum of $20,000, for the period in which you take part in the LLP.
As for the Home Buyers’ Plan (HBP), it enables you, as a first-time buyer, to finance the purchase of a home by withdrawing up to $25,000 from your RRSP with no tax impact, provided that you repay it within 15 years. To take part in the HBP, you must meet the eligibility conditions for the HBP and an RRSP withdrawal.
The spousal RRSP
If your income is higher than your spouse’s, you may contribute to a spousal or common-law-partner RRSP and receive a tax deduction for your contribution. The recipient may also contribute to his or her RRSP. A spousal contribution helps equalize a couple’s income in retirement, thereby decreasing their tax burden.
Moreover, when you reach the maximum age for participation in an RRSP, namely 71 years, you may continue contributing to your spouse’s RRSP if he or she is younger than you, until December 31 of the year in which your spouse also turns 71. This approach is beneficial for a couple. There are many benefits to setting up an income splitting strategy. For more information, you should consult a Financial Planner or Mutual Fund Representative.
Accounts for all your needs
Whether you’re thinking of retirement, the education of your children or grandchildren, or any other short- or long-term project, FÉRIQUE offers several types of account. See our website for more details.
RRSP-TFSA 2019 contest with $10,000 in prizes!
From January 1 to March 1, 2019, open an RRSP or a TFSA with FERIQUE Investment Services, or contribute to your RRSP or TFSA, and you could win one of 10 prizes of $1,000!
Special Advisory Services schedule for the RRSP season
To answer your questions and facilitate your transactions, Advisory Services will have extended business hours from February 18 to March 1st.
|Mondays to Fridays, regular schedule||8 am to 8 pm|
|Monday, February 18 to Friday, February 22||8 am to 9 pm|
|Saturday, February 23||9 am to 5 pm|
|Monday, February 25 to Friday, March 1||8 am to 9 pm|
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Or contact one of the Mutual Fund Representatives at the Advisory Services of FÉRIQUE Investment Services for personalized advice.
1 The management expense ratios of the FÉRIQUE Funds are among the lowest in their reference universes in Canada according to Fundata.
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