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RRSP Focus - Questions and Answers with a Financial Planner

February 7th 2019 - Betty Anne Flynn

We sat down with our Certified Financial Planner to talk about the most common RRSP questions our members have.  

 

Q: What is a Registered Retirement Savings Plan (RRSP)?

A: An RRSP is a government approved plan that encourages people to save for their own retirement years.  Contributions to your RRSP can be deducted from your annual income on your tax return, resulting in a reduction of income tax payable.  All income you earn on your RRSP investments is tax sheltered and therefore you don’t have to pay tax on that income until you withdraw the funds from RRSP.  The strategy behind RRSPs is to contribute funds in higher earning years and withdraw the funds in retirement when your income is lower.

 

Q: Who can contribute to an RRSP?

A: Anyone who has earned income, has a social insurance number and has filed a tax return can contribute to an RRSP up until December 31st of the year they turn 71.

 

Q: What is the limit one can contribute?

A: After processing your tax return, Canada Revenue Agency sends you a Notice of Assessment, which includes your next year’s contribution limit.  This document also shows unused contribution room.

 

Q: What is the deadline for contributing to an RRSP?

A: The deadline for RRSP contributions is always 60 days after the end of the previous year to be eligible to deduct your contribution for the previous year.  The deadline to contribute for the 2018 tax year is March 1, 2019.

 

Q: What are my investment options for my RRSP funds?

A: We offer several great options.  Here is a link for you to find out more.  https://secure.membersavings.ca/investing.html  Our Investment Specialist is happy to assist you in choosing the investment that best suits your needs.

 

Q: Can I take money out of my RRSP before retirement?

A: Although RRSPs were designed to save for one’s retirement, you can withdraw from RRSPs before retirement, but you will have to pay income tax based on your total income for the year and taxes could be hefty.  We recommend you obtain advice about tax implications as there may be a more suitable option rather than cashing RRSPs.

Withdrawing funds under the Home Buyers’ Plan to purchase a house, or withdrawing under the Lifelong Learning Plan, to study full-time are two options where we do recommend that you withdraw funds, as there are no tax implications when you withdraw the funds, and you have several years over which to repay the funds to your RRSP.

 

Q: What happens to my RRSP when I retire?

A: You don’t have to do anything with your RRSPs until age 71, at which time your RRSPs must be rolled into a RRIF or annuity that pays out minimum monthly payments.  You can roll some or all of your RRSP funds into a RRIF or annuity before age 71 if you require or want additional income.  Or you can take lump sums out of your RRSP as you need funds.  RRSP withdrawals, RRIF payments and annuity payments are all taxable sources of income, therefore we recommend that you plan this income wisely, to avoid a jump into a higher tax bracket and/or creating Old Age Pension claw-back.