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REGISTERED RETIREMENT SAVINGS PLAN
If dying too young is a risk, then, living too long can also be. The risk of outliving your resources and exhausting your savings can be incredibly stressful.
The money you earn in your working years should last until you die. Everyone wants a GOLDEN RETIREMENT for themselves.
Although the Canadian Government supports those eligible with C.P.P. (Canada Pension Plan) and O.A.S. (Old Age Security), you may need more money to keep up with your lifestyle.
As a thumb rule, you may require up to 70% of your preretirement income to maintain your lifestyle.
R.R.S.P. is one such instrument that can help you save for your retirement. An R.R.S.P. is not a type of investment, but rather an investment vehicle. It is a trust that holds eligible investments
How Does This Plan Work?
R.R.S.P. Is a registered saving plan in which you or your spouse can contribute. The contribution (up to a limit) you make can be claimed for tax deductions. Any income you earn in the R.R.S.P. Is usually exempt from tax as long as it stays invested in the plan. You generally have to pay taxes when you receive payments from the plan.
Annual contributions Limit to R.R.S.P.
1. 18% of an individual’s earned income in the previous year.
2. The maximum contribution limit for the current year.
The unused contribution room can be carried forward indefinitely to be used in the future calendar years, but over contributions that exceed an over-contribution limit of $2,000 are subject to a penalty tax of 1% per month.
Advantage Of An R.R.S.P.
* Help Save Taxes:
The contributions in an R.R.S.P can help you save taxes. Your net income for tax purposes is reduced by the amount you contribute up to your allowable limits. You may become eligible for a tax refund in case if you have already paid the taxes at the source.
Any amount contributed to an R.R.S.P can be invested in various qualified investments. Any interest, dividend or capital gain earned on these contributions are tax-sheltered. You need not pay taxes until the money is withdrawn for other than the allowable purposes. The Sheltering not only saves taxes, but it also boosts the returns on your investments.
*Home Buyer Plan:
Under the Home Buyers’ Plan (HBP), a participant and his or her spouse or common-law partner can withdraw up to $35,000 from an RRSP to buy or build a qualifying home. There are no taxes on the withdrawal, however missing any repayment will result in adding it into the income for that year; thus, making it taxable.
*Life-Long Learning plan:
You can always look towards improving your skills, updating your education. The R.R.S.P can help you to pay for your education expenses. It is a government program where you can withdraw money from your R.R.S.P to pay for full-time education or training. You can withdraw up to $10,000 per year up to a total of $20,000, but it must be repaid within ten years.
*Contribution to Spousal R.R.S.P:
An individual may choose to contribute to an RRSP in his or her spouse or common-law partner’s name while claiming the contribution as a deduction on his or her tax return. Spousal RRSP can be a useful income-splitting tool. It allows the spouse or common-law partner who is currently in the higher tax bracket to claim the deduction while allocating the retirement income to the spouse or common-law partner, which could reduce taxes as the funds are withdrawn after retirement.
Do You Know?
You can borrow money to contribute to an R.R.S.P.
Many Canadians borrow money every year to make their RRSP contributions. The financial institutions happily lend the funds at relatively low-interest rates to have these same funds contributed to the RRSPs that they offer.
Call us or book an appointment to discuss R.R.S.P and how you can plan for your GOLDEN RETIREMENT.
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