Putting money in an RRSP may lower your income tax.
When you deposit money in an RRSP (make a contribution), you can deduct this amount from your taxable income. For example, if you earn $45.000 per year and you contribute $5.000 to your RRSP, your income tax is calculated on the basis of $40.000.
The money you contribute to your RRSP can be invested in various ways.
For example:
- Guaranteed investment certificates
- Bonds
- Shares
- etc.
You don’t pay any income tax on returns generated by these investments (interest, dividends, capital gains)
What are the contribution limits?
The maximum amount you can contribute to your RRSP is indicated on your notice of assessment.
Several amounts go into calculating your limit:
Every year, you can contribute 18% of the salary you earned the previous year. The contribution limit is $26,010 for 2017 and $26,230 for 2018.
When are the deadlines?
You can contribute to your RRSP on any day of the year, up to December 31 of the year in which you turn 71. To reduce the income tax paid for a given year, you must make a contribution between January 1 and December 31 of that year, or within the first 60 days of the following year. If the 60th day falls on a Saturday or Sunday, the deadline is extended until the following Monday. The deadline is therefore always between February 29 and March 3.
Can I withdraw money from my RRSP before retirement?
Yes. However, you’ll have to pay tax on it. You’ll have to add the amount that you withdraw from your RRSP to your taxable income, whether or not you’re retired.
Exception: the HBP (Home buyes’Plan), used for purchasing a home.
What happens in the event of divorce?
Following a divorce, your ex-spouse may be entitled to a portion of your RRSPs. A divorce also changes your financial planning. If you get divorced, you’ll need to adjust your retirement plan.
What happens in the event of bankruptcy?
As a rule, only contributions you’ve made in the 12 months preceding your bankruptcy can be seized. The rest of your RRSP and your other registered investments.
You’ll need a savings and investment strategy to achieve your objective. Know about your full advantages by completing the form.