Kenyon Ndezi
  • Home
  • Discover
  • Finance
    • Business
    • Banking
    • Invest
  • Lifestyle
    • Travel
    • Food
  • Blogging
    • SEO
    • Troubleshoot
    • Themes
    • Plugins
    • WordPress Tips
featured
  • It’s Not Too Late To Change Careers
    • January 30, 2022
  • 101 Things To Do in Toronto
    • June 17, 2022
  • How to Start Investing for Your Future
    • April 16, 2023
  • man wearing suit, crossing zebra crossing
    What is short selling? Understand how investors make money betting against the stock market
    • August 28, 2022
  • The Complete Guide to TFSAs and RRSPs 
    • April 16, 2022
Kenyon Ndezi
  • Home
  • Discover
  • Finance
    • Business
    • Banking
    • Invest
  • Lifestyle
    • Travel
    • Food
  • Blogging
    • SEO
    • Troubleshoot
    • Themes
    • Plugins
    • WordPress Tips
Home Posts All You Need To Know About An RRSP Account
  • Invest

All You Need To Know About An RRSP Account

  • April 10, 2022
  • Kenyon Ndezi
Total
4
Shares
0
0
4

What is an RRSP account?

A Registered Retirement Savings Plan (RRSP) is a type of financial account that is registered with the Canadian federal government. It offers tax advantages to individuals who contribute and provides you with a safety net after retirement. In Canada, you can open an RRSP through a financial institution like a bank, credit union, or trust company.

How to contribute towards an RRSP?

It’s important to understand the rules before making contributions, to avoid penalties. For excess contributions exceeding the RRSP deduction limit by $2,000, you will have to pay 1% tax every month for that excess. You can avoid this by withdrawing the excess amount or transferring it to a qualifying group plan.

RRSP accounts can hold different investments such as; Cash, bonds, stocks, mutual funds, ETFs, options, treasury bills and guaranteed investment certificates (GICs).

How are contributions calculated?

The contribution you make to your RRSP is based on a percentage of your earned income, plus previously unused contribution room less any pension adjustments. Your maximum RRSP contribution limit is 18% of your annual earned income or $27,880 (whichever is lower) from the previous year.

The biggest advantage of an RRSP

Contributions are tax-deductible in the year they are made. This means that when you contribute to an RRSP, you are reducing your taxable income for the year by the amount of your contribution. For example, if you earn $90,000 in 2022 and contribute $10,000 to your RRSP, then your 2022 income would be taxed as if you only earned $80,000.

Additionally, contributions made to an RRSP are tax-deferred and will be taxed on withdrawal at the marginal tax rate. In simpler terms, the underlying investment income earned within an RRSP is sheltered from taxes until funds are withdrawn (interest earned on GICs, dividends paid on stocks, or any investment gains held within an RRSP, are not taxed until withdrawn).

How long can you make contributions?

You can invest in an RRSP until December 31 the year you turn 71. After this date, you can contribute up to your RRSP deduction limit to a spousal RRSP or common-law partner RRSP if your spouse or common-law partner is 71 or younger.

When an RRSP matures, there are three options to access funds

  • Lump sum withdrawal. A withholding tax will be placed immediately and paid to the government. The withdrawn amount also needs to be added as income when filing for taxes.
  • Convert RRSP to Annuity. An annuity is a financial product that provides you with a guaranteed regular income. You can buy an annuity with a lump sum or through multiple payments over time. There are different types of annuities such as life, term-certain and variable annuities. Each type has its advantages and disadvantages, however, what is common is; All annuities don’t have a withholding tax. However, each payment received will be subject to income tax. To learn more about annuities, click this link.
  • Convert RRSP to RRIF. An RRSP can be converted to a Registered Retirement Income Fund (RRIF). The amount of money you have in your RRSP at the time you convert it to an RRIF will determine how much you will receive each year. This payout is taxable income.


Read more about RRSP maturity

What’s the fuss about RRSP during tax season?

At the start of every year, you’re allowed to make contributions to your RRSP during the first 60 days and claim it as a deduction in your income tax return for the previous year. For people who haven’t used their contributions from previous years, there is more room for contribution.

The contributed amount will be deducted from your taxable income, thus reducing your taxes owing in any given year. Because your contributions are tax-deductible, you may receive a tax refund every time you make an RRSP contribution. The refund can be as much as 50% of every dollar contributed, depending on your personal tax rate.

You can also use an RRSP to split income with your spouse or common-law partner. For example, if one spouse or common-law partner has a significantly higher income than the other, he or she may be able to contribute to an RRSP for the other and deduct that amount from his or her income. (Note: Contributions to your own plan and your partners can’t exceed your allowable maximum contribution.)

Why you should consider opening an RRSP

  • RRSPs get you money back. You get a tax deduction when you put money in RRSPs, and you may receive a tax refund.
  • RRSP contributions can grow tax-free. As long as you don’t withdraw, tax is deferred.
  • Income in retirement. Once you retire, your RRSP withdrawals are taxed at a lower rate than your income when you were working.
  • It’s easy to make RRSP contributions. There are lots of choices for making your contributions: payroll deductions, online banking and automatic payments from your bank account are just a few examples of the ways you can contribute to your RRSPs regularly.
  • Tax-deferral on investments. As well as helping you save taxes, RRSPs give your investments a chance to grow on a tax-deferred basis. That means any interest, dividends and capital gains they earn aren’t taxed until they’re withdrawn. So your investments have more money working for them and you end up with more money in your RRSP account when it’s time to retire.

To learn more about other registered accounts, such as a tax-free savings account (TFSA), click here.

Total
4
Shares
Share 0
Tweet 0
Pin it 4
Kenyon Ndezi

Kenyon Ndezi is a recent graduate, writer, creator of vividbay.com, and the owner of Neonbuild.com, which is a company focused on building apps for small businesses and individuals. Follow along and get inspired!

You May Also Like
View Post
  • Invest

The Top Money Mistakes to Avoid in Your 20s and 30s

  • Kenyon Ndezi
  • April 17, 2023
View Post
  • Invest

How to Start Investing for Your Future

  • Kenyon Ndezi
  • April 16, 2023
View Post
  • Invest

TD Easy Trade Review: A great online trading platform for beginner investors

  • Kenyon Ndezi
  • March 24, 2023
View Post
  • Invest

Should I save or invest my money? The classic financial dilemma

  • Kenyon Ndezi
  • December 13, 2022
Girl jumping with excitement
View Post
  • Invest

How To Earn Stock Rewards With Wealthsimple Spend

  • Kenyon Ndezi
  • September 28, 2022
man wearing suit, crossing zebra crossing
View Post
  • Invest

What is short selling? Understand how investors make money betting against the stock market

  • Kenyon Ndezi
  • August 28, 2022
View Post
  • Invest

The Complete Guide to TFSAs and RRSPs 

  • Kenyon Ndezi
  • April 16, 2022
View Post
  • Invest

How To Invest In The Stock Market With Little Money In 2022

  • Kenyon Ndezi
  • March 26, 2022

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Latest
  • A Comprehensive Guide to Recycling Your Vehicle in Canada
    • September 21, 2023
  • Ezoic Review: Better Than I Imagined – Integration, Revenue and Performance Insights
    • September 18, 2023
  • Why You Should Avoid Buying Traffic and Backlinks from Fiverr
    • September 14, 2023
  • Solving Duplicate Content Issues: Use the Bulk Move Plugin to Manage posts in Multiple Categories
    • September 12, 2023
  • Walmart Rewards Mastercard – A Shopper’s Dream
    • July 25, 2023
Categories
Banking
11 Posts
View Posts
Blogging
5 Posts
View Posts
Business
9 Posts
View Posts
Finance
15 Posts
View Posts
Food
3 Posts
View Posts
Invest
14 Posts
View Posts
Lifestyle
9 Posts
View Posts
Travel
15 Posts
View Posts
Wordpress Tips
5 Posts
View Posts
You Might Like
  • 1
    The Pros and Cons of Using Credit Cards for Travel
    • April 17, 2023
  • Chess game. 2
    The Ultimate Amazon Affiliate Strategy to Maximize Sales
    • March 13, 2023
  • 3
    Be Forward Buyers Guide: How To Buy and Import a Car to Tanzania, Africa
    • March 10, 2023
  • 4
    How To Hide Widgets On Specific Posts And Pages In A WordPress Site.
    • August 24, 2021
  • 5
    How to get over gym anxiety.
    • February 22, 2022
SUBSCRIBE TO OUR NEWSLETTER
Kenyon Ndezi
  • Contact
  • About
  • Privacy Policy
Business & Lifestyle

Input your search keywords and press Enter.