Registered Retirement Saving Plans
RRSP Registered Retirement Savings plan is a tax deferral program. Under this plan, it allows you not to pay taxes now. When you are in a lower income tax bracket at old age you can start withdrawing money out of this plan.
Any amount you invest under this plan grows tax free till you start taking money out of this plan.
Income tax act allows you to have a self-directed RRSP. It means you can manage your account yourself.
You can choose your spouse or dependent children as beneficiary of your RRSP account. This can save a loss of funds to tax in case of your death. If you do not have a beneficiary the whole amount in your RRSP will become taxable in your Estate. This way Government will get more out of your RRSP than your heirs.
You can make contributions to your spouse’s RRSP account which is completely permissible under Income Tax Law. This way both you and your spouse can withdraw from your RRSP accounts and taxable amount of each could be very low in comparison to if only one spouse was taking the full amount.
In the case of first time home buyer, you can withdraw $25,000 from your RRSP and your spouse can also withdraw $25,000 for purchase of the house. To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. Withdrawal is not taxable if you pay it back in 15 years. Pay back amount is one – fifteenth a year of the amount you withdraw from your RRSP.
Under the federal Lifelong Learning Plan (LLP), you can withdraw up to $20,000 – with an annual limit of $10,000 – to pay for full time education training for yourself or your spouse. This education program has to be taken at a qualifying institution. Repayments usually start in the beginning of 5th year and have to be completed within 10 years.
There is a penalty of 1% per month for over contributions made to an RRSP. However, over contributions up to $2,000 at any time in the year are allowed without any penalty.
Many funds you invest in have administrative fee. You should try paying this fee separately and do not let the institution deduct this fee automatically.
If comparing your mortgage rate and RRSP earning rate, you find that RRSP has greater return than your mortgage rate, you should keep on investing in your RRSP than to pay mortgage. Ideally RRSP returns should be at least 2% more than your mortgage rates to keep on investing in RRSP.
You can transfer personally held property to an RRSP at fair market value. Any capital gains arising from this transfer are taxable. Capital losses on such a transfer are not allowed to be deducted.