Getting started early with your retirement savings could be one of the most important steps you ever take in your financial life. Consider securing your financial future by starting a new RRSP account or enhancing your existing Registered Retirement Savings Plan (RRSP) and enjoy plenty of benefits.
What is RRSP?
Registered Retirement Savings Plan, or RRSP, is a flexible and powerful savings tool designed to help hard working Canadians save for retirement. Introduced in 1957, RRSP is a registered account for holding retirement savings and investment assets. It offers a perfect solution to save for the future while reducing your taxable income today.
A RRSP can contain certain approved assets such as savings accounts, bonds, mortgage loans, guaranteed investment certificates (GICs), income trusts, foreign currency, corporate shares (stocks), and labour-sponsored funds. The income you earn in the RRSP is tax deferred.
Who Should Consider Getting an RRSP?
Every Canadian who earns income through employment or self-employment should consider having an RRSP, file an income tax return and look forward to a financially secure retirement. The sooner they start and build their own RRSP, the more quickly their personal savings plan will start working for them.
What Are the Advantages of a Registered Retirement Savings Plan?
RRSP has two major tax advantages:
1. Tax Credits: RRSP contributions will reduce your taxable income up to the maximum allowable contributions annually.
2. Tax Deferred Growth: The investment growth in your RRSP is tax sheltered. So unlike other non-RRSP investments, the returns are exempted from any capital-gains tax, income tax or dividend tax. This means that your investments under RRSP compound at a pretax rate.
Other features of RRSP also include:
Plan members can borrow funds to increase their contributions through RRSP loan,
- Allows you to use RRSP to fund specific life events,
- Withdrawn amounts are taxed based on the current tax tables, and
- You can pay by pre-authorized payment plans.
How Much Can You Put into an RRSP?
Depending on your situation, determining your earned income can be complicated. Refer to your Notice of Assessment from the Canada Revenue Agency (CRA). It’s a form that the CRA sent you once they finished processing your tax return. The Notice indicates how much you owe the CRA (in case you do) or the amount of your tax refund (in case you’re getting one).
The contribution amount to your RRSP will be based on a percentage of your earned income to a maximum that the CRA determines each year. Consult with your accountant to get a proper calculation of your earned income.
The rules governing RRSPs are set out in the Federal Income Tax Act and administered by the Canada Revenue Agency.
For more details about Registered Retirement Savings Plan (RRSP) and how you can use it to secure a guaranteed income for the rest of your life, contact Synergy Life Financial now!
