REGISTERED RETIREMENT SAVINGS PLAN (RRSP)

Saving For the Future: The RRSP Edition

Worried about your financial future? At SoftronTax, we ease your fears by helping you choose your best financial options!

A registered retirement savings plan (RRSP) is a savings account that is arranged between an individual and an issuer (such as an insurance company, trust company or bank). Pre-tax money is placed into an RRSP and grows tax-free until the time of withdrawal, when it is taxed at the marginal rate.

The amount that you can contribute annually is based on your RRSP deduction limit, which is calculated using the previous year’s earned income. The calculated amount is reduced further by the pension adjustment amount. The pension adjustment (PA) amount is the value of the benefits you earned under your employer's registered pension plans. You can find out your deduction limit by logging in to “My Account” or on your Notice of Assessment.

Contributions to an RRSP can be made until the end of the year in which you turn 71, or in regards to spousal contribution, until the end of the year in which they turn 71.

Income earned on funds within the RRSP plan are tax-free; but, like most tax shelters, the RRSP is merely a tax deferral plan. Therefore, any withdrawals from the RRSP are taxable in the year the withdrawal is made and are reported on the T4RSP slip.

The great benefit of RRSPs is that contributions are deductible under the Income Tax Act, so by claiming the current year's contributions, you can reduce your tax payable in your income taxes! Keep your current year's RRSP contribution receipt and claim it to achieve a higher refund, or a lower balance owing.

TIPS on INVESTING IN RRSPs

We can provide tax saving opportunities to clients for tax optimization, but we do not provide investment advice as that must be done through a financial advisor at a financial institution.

If a taxpayer’s income fluctuates, they can achieve tax savings by contributing to their RRSP in a year when income is high, and collapsing the plan in a year when income is low

The total amount of annual contributions can be deducted from the gross income; thus reducing the amount of Income tax that is otherwise payable in the year. So it's good to invest a lot into your RRSP, but be sure not to over contribute! Please discuss with your financial advisor which contribution amount is most beneficial for you

The income earned in your RRSP is not taxed on until it is withdrawn. While your investments sit in your RRSP, their growth is tax sheltered and therefore the total value may grow more quickly. Avoid withdrawing from the account before the money matures, or you will be paying tax on that income you receive

By the time you begin to withdraw the funds at retirement, you may be in a lower tax bracket than during your earning years. RRSP Funds withdrawn at that time will benefit from this lower tax rate

Choose an RRSP, for a future guarantee!