RRSPs are a key part of retirement planning because of the tax advantages they offer. But you need to know the rules to get the most mileage out of RRSPs and avoid tax penalties. Do you have an employer-sponsored pension plan? If so, your RRSP contribution limit is reduced by the pension adjustment. The pension adjustment is calculated by your employer and reported to the CRA on your T4 each year. If you're a member of a defined contribution registered pension plan RPP or defined profit sharing plan DPSP , your pension adjustment is the total contributions to the plan made by you and your employer.
If your RPP is defined benefit, your pension adjustment is determined by a formula designed to reflect the pension benefit entitlement you earned in the year. For more information, see the CRA website. You must convert to a registered retirement income fund RRIF after that or purchase an annuity to avoid having the value of your RRSP fully taxed in the year.
An RRSP is a simple way to save for retirement and pay less income tax. There are other useful things you can do with your RRSP though, including:.
This information is not intended to provide specific financial, tax, investment, legal or accounting advice. For further details, visit the CRA website. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.
Please read the prospectus before investing. To use an RRSP contribution as a tax deduction in , you must contribute to it during or in the first 60 days of If you turned age 71 in , you have only until December 31, to contribute to your own RRSP - but spousal RRSP contributions might be possible afterwards, if your spouse is not yet age If you do not make your maximum annual RRSP contribution, any unused portion is automatically brought forward, so you can use it in any future year s.
Once you have contributed, you are free to explore rules to make the most of your RRSP deduction. You can choose not to deduct your entire contribution right away. Saving a tax deduction to use later might have its advantages: Your money grows in a tax-sheltered environment, while you wait to use your tax deduction. If you wait to deduct some or all of this year's RRSP contribution, you might get more tax savings than deducting it all this year.
You can contribute it to your RRSP and deduct the full amount this year. You save more tax because smaller deductions over three years keeps your earnings below the start of the higher tax bracket for all three years.
Sometimes it makes sense to postpone deducting your whole RRSP contribution. Say you just started a job mid-year. Next year you'll be taxed on a whole year's salary, but this year your income will be relatively low.
You can start saving some of your new salary right away, but using the whole RRSP deduction next year could save you a lot more tax. While it makes sense to sometimes postpone an RRSP deduction, the opposite can also be true. Let's say your taxable income will drop next year, for example because you're starting a business or going part-time.
Topping up your RRSP now when your taxable income is high, and completely using your available RRSP deduction room might save you much more tax than contributing later.
We suggest you check with your tax advisor or your Vancity investment professional before electing to carry-forward RRSP deductions. It's very important to your overall plan that both the pros and cons of this strategy be reviewed. There are a number of questions you should be asking yourself about this strategy:. Contact us today to see if withdrawing from your RRSPs' is the best option - give us a call at , or drop by your local branch to discuss the right strategy for you.
Search RBC. Personal Banking. Contact Us Location. What is the Home Buyers' Plan? Considerations It's very important to your overall plan that both the pros and cons of this strategy be reviewed.
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