Retirement saving is essential
If you are a member of a company pension plan, an RRSP should be used as
a supplementary investment. If you are not, an RRSP is a must. The major
reason to contribute to an RRSP is to provide retirement income. An
added value is the deferral of tax on both the funds contributed to the
plan and the investment income earned in the plan. You deduct the money
you place in an RRSP from your earned income, reducing your current tax
burden. The funds will be taxed when you withdraw them, which is usually
after retirement. At that time, both your income and your tax bracket
may be lower.
How much to contribute
In any year, you can contribute 18 per cent of your previous year's
"earned income" to an RRSP. Earned income is your salary or business
income for most people. However, it can also include research grants,
royalties, taxable alimony and child support, rental income, CPP/QPP
disability income, and other amounts.
The maximum contribution is:
2011 and following years, indexed to increases
in the average wage.
A company pension will affect your maximum allowed
contribution. You must deduct your "pension adjustment" from your RRSP
room to account for the pension. Your employer will report this amount
to you. The Canada Revenue Agency tracks your RRSP deduction limit for
the current year. You will find it on the notice of assessment issued
for your previous year's tax return.
When to contribute
You have until 60 days after the end of the year to contribute to an
RRSP for that year. This means the busiest time for buying RRSP
investments is in the last two weeks of February. But that's not the
best time. It's far better to contribute regularly throughout the year.
It's easier to save a little at a time than a large lump sum. If you
don't make your maximum allowed contribution, you can make up the
difference in future years. You can carry forward your unused
contribution room indefinitely, but most Canadians have such a large
shortfall they will never make it up. And remember, the longer your
money is in the plan, the larger it grows.
Many investment options
RRSPs may seem straightforward, but they can be complicated by the many
ways to invest. These include segregated funds, mutual funds, guaranteed
investment certificates (GICs), fixed-income securities, Canada Savings
Bonds, qualified mortgages, and cash. In most plans, foreign investments
can be up to 30 per cent of the book value of your RRSP. Making the best
use of an RRSP involves tax, retirement, and investment planning. Your
financial advisor can help you make the right decisions. For more on
RRSPs, please feel free to contact.
Make up missed RRSP contribution
Every year, thousands of Canadians miss making an RRSP contribution.
Thousands more cannot make the full amount. The RRSP season falls right
after Christmas, when money is tight in many families. And far too many
people wait until the last minute to contribute.
How to carry forward
If you missed the deadline for this year's RRSP payment,
you've missed out on both a significant tax break and the opportunity to
let your retirement money grow tax-free. You can't catch up on that
time, but you can put the money in later. You can carry forward unused
contribution room. For every year that you do not contribute the full
amount, the unused contribution room accumulates. Look at the assessment
notice for last year's income tax return ?it will tell you the full
amount. But as that number gets bigger, the chances of ever making it up