RRSPs

To open an RRSP, you will need:

• A Canadian Social Insurance Number

• To have filed an income tax return the previous year and declared earned income

• Canadian employment or business income or unused contribution room

Canadians can enjoy immediate tax savings because an RRSP allows you to deduct from your income on your tax return the amount of the contribution made in the same tax year and/or the first 60 days of the following year. RRSP contributions can defer and potentially lower the amount of income tax you pay because, when you withdraw the money from a RRIF and pay income tax on it, you’re likely to be in a lower tax bracket than today.

Our $0.02: Let's look at how it works:

If you make a $5,000 RRSP contribution, the amount of your taxable income will be reduced by $5,000. Your tax savings will depend on your marginal tax rate:

*Amount withdrawn would be taxed at the person’s marginal tax rate when added to their tax return.
**Source: Canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans.html, February, 2020.

Deadline

You can contribute to your RRSP anytime of the year. The deadline refers to contributions made during the first 60 days of a calendar year (typically on or before March 1). These contributions can be applied against the previous or current taxation year. 

Limit

Your registered retirement savings plan (RRSP) deduction limit, often called your “contribution room” is the amount that you can contribute to your RRSP or your spouse or common-law partner’s RRSP. It is also the maximum you can deduct on your tax return, reducing your tax for that year.

Our $0.02: We don't recommend you try it, but your RRSP limit is calculated as follows:

Instead, you can find your contribution limit:

• • On your previous year’s Notice of Assessment from the Canada Revenue Agency (CRA)

  • Online using the My Account feature on the CRA website

If you are unable to maximize your RRSP contribution in any given year, your unused contribution room can be “carried forward” to a subsequent year

Over-Contributions

Generally, you have to pay a tax of 1 percent per month on your contributions that exceed your RRSP deduction limit by more than $2,000:

• $2,000 lifetime over-contribution limit

• Penalty tax of 1% per month on the amount over the $2,000 limit may apply until withdrawn from the plan

Age Limits

There is no minimum age for contributing to an RRSP, keep in mind however, the applicant must have earned income in the previous year. 

If an investor turns 71 this year:

• • By Dec. 31, they must convert their RRSP to a Registered Retirement Income Fund (RRIF), an annuity, or cash it in

  • They can still contribute to their RRSP until Dec. 31 if they have unused contribution room or earned income last year and filed a tax return

Spousal RRSPs

In a Spousal RRSP, the contributor receives a tax deduction, but their spouse or common-law partner is the registered owner (annuitant).

• All or a portion of RRSP contributions can be contributed to an RRSP in a spouse's name

• The spouse does not need to have earned income or their own contribution room

• After 71, if you continue to have earned income, you can contribute to a spousal RRSP up until December 31 of the year your spouse or common-law partner turns 71 (subject to contribution room)

Our $0.02: This type of plan can help ensure that retirement income is more evenly split between you and your spouse. The benefit is greatest if a higher-income spouse or common-law partner contributes to an RRSP for a lower-income spouse or common-law partner.

Any income you earn in the RRSP is usually tax-sheltered as long as the funds remain in the plan. However, you generally have to pay tax when you make withdrawals from your plan.

There are a few circumstances where you can make withdrawals and tax is typically not incurred. Two of the situations are if you make a withdrawal under either the Home Buyer's or Life Long Learning Plan. 

Home Buyer’s Plan (HBP)

The HBP allows Canadians to borrow from their RRSP to put towards the down payment on their first qualifying home – or a home for a related person with a disability.

• Withdraw up to $35,000 in a calendar year ($70,000 per couple) 

• Qualifying withdrawals are not added to your taxable income

• The withdrawals must be paid back within 15 years (or you must add the proportionate annual repayment amount to your income.)

• There is a one tax-year grace period, so repayments must start by the end of the second tax year following the withdrawal

Lifelong Learning Plan (LLP)

The LLP allows Canadians to borrow funds from their RRSP to finance full-time training or education for themselves and/or their spouse or common-law partner. When you withdraw funds from your RRSPs under either of these plans, you do not include them as income on your income tax return.

• Withdraw up to $10,000 in a calendar year up to a $20,000 maximum per person 

• They have to repay these withdrawals within 10 years

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How to Invest

• With the advice of a professional. We can meet in person, over the phone or virtually. We can even meet where you are. Our experts will help break it down for you, explaining your options so you can make informed decisions on what’s right for you.

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  • Book a meeting

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How to Invest

• With the advice of a professional. We can meet in person, over the phone or virtually. We can even meet where you are. Our experts will help break it down for you, explaining your options so you can make informed decisions on what’s right for you.

  • Book a meeting

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How to Invest

• With the advice of a professional. We can meet in person, over the phone or virtually. We can even meet where you are. Our experts will help break it down for you, explaining your options so you can make informed decisions on what’s right for you.

  • Book a meeting

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Save automatically

If you act on only one idea here, make it this one. Because the difference between retirement success and failure isn’t how much money you make, or how smart you are, but how well you conquer the all-too-human tendencies to procrastinate and under-save. So ask us to automatically route smaller, regular contributions from your chequing account to your RRSP. You’ll get the advantage of dollar cost averaging, you’ll probably save more, and there’s no more scrambling at RRSP season.

Start early

It’s practically ‘the’ universal law of saving — start early. You’ll get time and compounding working for you. And that can make a big difference to how much you need to save. A person making $50,000 who wants a retirement income of $40,000 needs to put aside about 8% of their salary each year if they’re starting to save at age 25, but 22% if they’re starting at age 50.

Save the max

Contributing your maximum is essential to taking full advantage of your RRSP. If you don’t have the money, consider an RRSP loan or using a line of credit. You'll pay interest, but the compounding growth of your money over the long term may far offset the interest costs. Another smart move — use your tax refund to pay down the amount you borrowed.

Save sooner

Make your contribution as early in the year as possible instead of leaving it until the 60th day of the following year when the RRSP deadline is looming. You’ll benefit from up to 14 extra months of tax-deferred compounded growth.

Catch up

Use up your carried forward contribution room as soon as possible. If you can’t catch up in one lump sum, consider borrowing. Check the Notice of Assessment sent to you by the Canada Revenue Agency to find your unused contribution room.

Save for your spouse

If you’re the family’s higher income earner you can invest some or all of your contributions in your spouse’s RRSP and claim the tax deduction. The big benefit comes at retirement when more equalized nest eggs can reduce your combined tax bite and mean more cash to live on.

Name a beneficiary

If you don’t name a beneficiary your RRSP will be considered part of your estate and be subject to probate, taxes, and other fees. In some cases that can reduce its value by almost 50%. If you name your spouse or a dependent child/grandchild as the beneficiary, your RRSP transfers to them tax-free.

Get advice

Whether you’re new to investing, or a seasoned veteran, it’s always a good idea to get professional advice. So drop into any branch of Weyburn Credit Union and speak to an Investment Specialist who can provide you with an expert’s insight and help you make informed decisions about your RRSP.