Planning for your Future Starts with Your RRSP
A registered retirement savings plan (RRSP) is registered with the federal government, and is commonly used to save for retirement and defer taxes until a later date. The deadline to contribute to RRSPs for 2014 income is March 2, 2015. Here are five reasons to contribute to your RRSP before the deadline.
Savings grow tax free
Very few things in Canada come without a tax burden, but this is one of them. Any growth on the savings will be tax free as long as it stays within the plan. This will allow for tax-free compounding to grow your savings much faster.
Contributions are tax deductible
Your contribution into your RRSP is tax deductible. Here is an example: you earn $50,000 in 2014 and you make a $2,000 contribution to your RRSP. After your RRSP contribution, your eligible earnings for taxes are now $48,000. The difference is any taxes you may have paid at source or through your employer, which you will receive back through your tax return. The higher the tax bracket you are in, the greater the savings you will receive.
A spousal RRSP can reduce your family tax burden
If your earnings are greater than your spouse’s, you can help build your spouse’s savings for retirement while getting the tax deduction. The retirement income will be split between you and your spouse, helping save on the total amount of tax you pay.
Convert your RRSPs into regular payments
When you’re ready to retire, you can turn your RRSPs into regular payments by converting them to a registered retirement income fund (RRIF) or a payout annuity. You’ll pay tax on the withdrawal as you take your payments, but the money you contributed could have grown at a higher rate through your RRSPs, than just an open investment account.
You can borrow from your RRSPs to buy your first home
Using the Home Buyers’ Plan (HBP), you can use your RRSPs savings to buy your first home. The plan allows you to withdraw up to $25,000 to use as a down payment on your first home, while paying it back within 15 years of the withdrawal.
The bottom line
If you have questions about getting started with a RRSP, please contact me to get started.
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