FAQs about RRSPs
What is an RRSP?
- A Registered Retirement Savings Plan is a personal savings plan registered with the Canadian federal government, allowing you to save tax-sheltered funds.
- An RRSP portfolio can contain a variety of investments, including: RRSP savings deposits, treasury bills, GICs, mutual funds, bonds, and even equities.
What are the benefits of an RRSP?
- Immediate tax credit.
- Tax-sheltered savings.
- RRSP savings are not taxed until withdrawn—if you're in a lower tax bracket when you withdraw than when you invested, you'll be taxes at the lower rate.
How much will I save on taxes in the year that I invest?
- It depends on your current tax rate.
- For example, if your marginal tax rate is 35% and you contribute $5,000 to your RRSP, your tax benefit will be $1,750.
What type of RRSPs are there?
- Individual RRSP (registered to contributor).
- Spousal RRSP (registered to your spouse, but your contributions do not affect the contribution limits of the spouse).
- Group RRSP (collection of individual RRSPs offered to employees by an employer).
- Self-Directed RRSP (self-managed RRSP portfolio).
How much income do I need to retire?
- You need to ask yourself what kind of retirement do you want? Do you want to travel? Will you work part-time? Will you volunteer? Do you want to retire early, or retire late? Did you plan for 30 years of retirement?
- This will determine how much you need to retire.
How often should I contribute?
- This will depend on each individual; however putting your money to work sooner is better.
- Setting up pre-authorized payments can be an easy way to make saving manageable and have your investment growing sooner.
How much can I contribute?
- Your allowable RRSP contribution for the current year is the lower of 18% of your earned income from the previous year or the maximum contribution limit for the taxation year (maximum 2015 RRSP deduction limit: $24,930). Beginning in 2016, your RRSP deduction limit will be $25,370.
- You can contribute to your RRSP until December 31st of the year you turn 71.
When is the contribution deadline?
- 2015 contribution is due by February 29, 2016.
Can I carry-forward unused contribution room?
- Yes. Your unused contribution room is shown on your federal Notice of Assessment.
Can I over-contribute to my plan?
- There is a lifetime allowance of $2,000 for over-contributions if you were 19 years old or older at any time in 2016.
- Generally, you have to pay a tax rate of 1% per month on your unused contributions that exceed your RRSP deduction limit by more than $2,000.
- Always seek advice from a qualified expert before making any over-contributions to your plan.
What if I have a Company Pension Plan or Deferred Profit Sharing Plan?
- The amount you can contribute must be reduced by the total value of the pension credits you earned for the year.
- You must transfer certain payments directly to ensure that these funds are transferred tax-free. Be sure to ask the payer to transfer them directly to avoid needing to claim as income.
Can I transfer my RRSPs?
- You are not subject to tax at any time you wish to transfer RRSPs between financial institutions or between investments within your RRSP portfolio.
Can I withdraw funds from my RRSP?
- Funds withdrawn from an RRSP will be charged withholding taxes. In all provinces except Quebec, a 10% tax rate is applied for withdrawals up to $5,000, 20% for more than $5,000 to $15,000 and 30% for more than $15,000.
What is an RRIF?
- A Registered Retirement Income Fund is an extension of your RRSP. An RRIF is used to withdraw income during your retirement while still allowing for tax-deferred growth. With an RRIF you cannot make annual contributions, and you must make a minimum withdrawal each year.
Contact a credit union professional for more information on any of these topics.