RRSP

 

What Is a Registered Retirement Savings Plan (RRSP)?

A Registered Retirement Savings Plan (RRSP) is a retirement savings and investing vehicle for employees and the self-employed in Canada. Pre-tax money is placed into an RRSP and grows tax-free until withdrawal, at which time it is taxed at the marginal rate.

Types of RRSP:

There are a number of RRSP types, but generally, they are set up by one or two associated people (usually individuals or spouses).

  • An Individual RRSP it set up by a single person who is both the account holder and the contributor.
  • A Spousal RRSP provides benefits for a single spouse and also a tax benefit for both spouses. A high-earner (spousal contributor) may contribute to a Spousal RRSP in their spouse’s name (the account holder). Since retirement income is divided evenly, each spouse can benefit from a lower marginal tax rate.
  • A Group RRSP is set up by an employer for employees and is funded with payroll deductions. It is administered by an investment manager and affords contributors the advantage of immediate tax savings.
  • A Pooled RRSPis an option created for small business employees and employers, as well as the self-employed

 

RRSP Contribution Limit

  • Because RRSPs are registered accounts, they’re subject to certain rules. One of the most important rules concerns the amount of money you can contribute to the account in any given year; it’s either 18% of your past year’s income or a maximum amount, whichever’s smaller.

 

Over contributions:

 

Any amount up to $2,000 over your annual limit will be forgiven (though it won’t be considered tax-deductible). Over that, the CRA will assess a penalty of 1 percent on that over contribution per month.

Qualified Investments

 

Savings accounts, GIC’s, government bonds, mortgages, shares and bonds of companies listed on a Canadian stock exchange, certain mutual funds, and certain bonds, shares of corporations listed on foreign stock exchanges and certain investments.

 

Registered Retirement Income Funds (RRIFs)

 

In the year an RRSP holder turns 71, the RRSP balance must be liquidated or shifted to a Registered Retirement Income Fund (RRIF) or to an annuity. An RRIF is a retirement fund similar to an annuity contract that pays out income to a beneficiary or a number of beneficiaries.

RRSP Home Buyers Plan

 The HBP, a program through the Canada Revenue Agency (CRA), allows eligible first-time homebuyers to withdraw up to $35,000 tax-free from their RRSP to be used towards a down payment on the purchase of the home.

 

For More Information please visit:

 

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/registered-retirement-savings-plan-rrsp.html