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RRSP Basics PDF Print E-mail
Written by David M. Voth   
Saturday, 21 February 2009 17:37


What is an RRSP?

RRSP is an acronym for Registered Retirement Savings Plan. RRSPs are the Canadian government’s plan for citizens to save money for retirement.


Who Can Set Up an RRSP?

You are under the age of 71 as of Dec 31, 2008

You have contribution room – see below

You file an income tax return with the Canadian government


Two RRSP Tax Benefits:


1. Tax-Deferred Growth 

All investments within an RRSP account grow tax-deferred. This means that any profits made on investments within an RRSP account in the form of interest, dividends, or capital gains are not immediately taxable to you as income. There is a difference between tax-deferred and tax-free. Deferred means that although you don’t pay tax at the time the income ids earned you will pay tax when you take money out of your RRSP.  You have to pay tax on every withdrawal—but you don’t have to pay any tax until you with withdraw from the savings plan.


2. Income Tax Reduction Now

The second major tax benefit comes in the form of a tax savings now. You are allowed to deduct the amount of your RRSP contribution from you earned income; therefore, reducing your tax bill.


There are Limits

The maximum amount that you can contribute to an RRSP to be deducted is called the “RRSP deduction limit”. Your deduction limit is found on your Notice of Assessment or Notice of Reassessment from Canada Revenue Agency. Your 2009 limit would be on your 2008 Notice. The deduction limit is calculated as:


18% of your earned income for the previous year, up to an annual dollar limit.

The maximum RRSP deduction limit for 2008 is $20,000, and it is projected to increase to $22,000 by 2010:


2008 maximum RRSP deduction limit: $20,000

2009 maximum RRSP deduction limit: $21,000

2010 maximum RRSP deduction limit: $22,000



You have until March 2, 2009, to make a deductible contribution for 2008.

More Overlooked RRSP Tricks PDF Print E-mail
Saturday, 21 February 2009 17:29

By Francis D'Costa


More than 65% of Canadians have made deposits to Registered Retirement Savings Plans (RRSPs). Many do so just for the tax savings, but here are some often overlooked tricks you should be aware of:


RRSP loan at the dip
Those who use investment funds for their RRSPs should be well aware of the strategy of “buying low and selling high.” As unnerving as it may feel, one of the best times to make a lump sum deposit is after there has been a substantial stock market correction. If you don’t have the cash on hand, an RRSP loan, paid back monthly, is an attractive way to come up with a larger deposit.


Use refunds wisely
Many RRSP contributors receive tax refunds each year. All too often, the refund gets blown on consumer items. Why not endorse the cheque directly over to your RRSP carrier and get a head start on next year’s contribution? How about a deposit to an RESP for your child or grandchild that would be eligible for the 20% Canadian Education Savings Grant (CESG)? Have you thought about using it to pay down credit card or other high interest consumer debt?


Don’t wait for your RRSP tax break
If you are making regular deposits to your RRSP (e.g. monthly PAC deposits), you can complete and file a TD1 or T1213 to reduce the taxes withheld from your paycheque. This allows your employer to deduct your RRSP contribution amount from your income before income taxes are calculated, giving you an instant tax deduction. Why let the government use your money interest free?


Delay the deduction
A few weeks after you file your tax return, you receive an Income Tax Assessment from Canada Revenue Agency (CRA). It summarizes your income and deductions, and also tallies your RRSP contribution room. If you come into a windfall, you can deposit up to your contribution room from it into an RRSP. You are not required to take the full deduction on your next tax return. It can make a difference to wait until a later year when you reach a higher tax bracket so you can benefit from a larger tax savings. In the mean time, your RRSP deposit can grow tax deferred.


Name a beneficiary
If you don’t name a person (or persons) as a beneficiary for your RRSP account, the funds will be paid into your estate on death. A spouse may lose the opportunity to elect a tax-free rollover into their RRSP or RRIF. Also, the funds then become subject to the costs and delays of having them settled through your estate. It makes sense to review your designations regularly and make changes when necessary.


Use up a deceased’s Contribution Room
Jessica, as a new widow, completed and filed a terminal tax return for her husband, Andrew. She received his life insurance proceeds and he had lots of unused RRSP contribution room. Andrew had earned about $60,000 in salary in the year of his death. Jessica was able to make a large contribution to her spousal RRSP with Andrew as the contributor. As she was able to reduce his taxes to zero, all the income taxes withheld during the year were refunded. She then deposited the refund into her own RRSP. More overlooked RRSP tricks


Francis D'Costa

D’Costa Financial Group