RRSP’s (Registered Retirement Savings Plan)
This is a plan to help you save money for retirement. It gives you current tax advantages for contributions and also allows your investments to grow inside the plan with no taxation.
Contribution to a RRSP will reduce your taxable income ‘dollar-for-dollar’, thus reducing the income taxes that you need to pay on your current year’s income. For example, if you are at a 40% tax rate (don’t forget to include CPP), a $1000 contribution to your RRSP will reduce your taxes that year by $400!
Contributions are limited to an amount of up to 18% of your last year’s income less any pension adjustments (if you were a member of a company pension plan last year). For the year 2016, the maximum amount you can put away in a RRSP based on your T4 income is $25,370 ..
Remember in your retirement planning that having only RRSP monies at retirement could create an onerous tax burden on you during your retirement. Ask an RPA from ConsultDoug for advice in this type of planning.
You must collapse your RRSP and withdraw the funds by December 31st of the year in which you turn age 69. The funds are totally taxable to you at that time, so it is important to transfer them into a plan that both spreads out the taxation impact on your funds and provides you with a continuing income stream through your retirement.
You have two options:
RRIF (Registered Retirement Investment Fund) – a plan that offers flexibility in investment and withdrawal amounts. It is the best plan if you are concerned about the tax level you will be forced into if all your investments at retirement provide too much money too soon.
Annuity – a plan that gives no flexibility but that does guaranty a fixed monthly income for life. Plans can be indexed for inflation (but will have a lower initial monthly amount). It is best for people not wishing to risk their monies in funds and just want to know what they will be paid for the rest of their life.
Many institutions such as banks, trust companies and insurance companies offer RRSP plans with different types of investment. Even if you already have a plan but are not satisfied with the institution it is in, you may transfer your RRSP investments to another carrier. Special care must be taken though, as many investments have ‘surrender charges’ and no transfer should create a greater penalty than eventual reward.
Ask ConsultDoug to check the market to see what is best for you and your investment.