It’s RRSP Season!
The deadline for making a contribution to an RRSP for taxation year 2016 is March 1, 2017.
Here is a refresher on Registered Retirement Savings Plans:
Any person under the age of 71 and earning income in Canada, regardless of their place of residence, can contribute to an RRSP. When you put money into your RRSP, you can deduct that amount from your taxable income for that year.
RRSPs reduce taxes in up to 3 ways:
- The amount you contribute annually to RRSPs, up to permitted limits, will be deducted from your income before calculating the taxes due. So by lowering your income level you will pay less in income taxes for that year.
- Income earned within the RRSP, whether it is interest, dividends, trust distributions or capital gains is not taxed until money is withdrawn from the plan. This allows the plan to grow faster than if the same investments were held outside the plan and subject to income tax.
- Money can be withdrawn from an RRSP at any time, in accordance with the plan’s rules. It is best to withdraw (or de-register) funds in tax years when your income is lower and you are in a lower income-tax bracket. This could happen before your retirement due to unemployment or if you decide to stop working and go back to school, or become a stay at home parent etc… .
Investments you can hold in an RRSP include:
- Gold and silver bars
- Savings bonds
- Treasury bills (T-bills)
- Bonds (including government bonds, corporate bonds and strip bonds)
- Mutual funds (only RRSP-eligible ones)
- Equities (both Canadian and foreign stocks)
- Canadian mortgages
- Mortgage-backed securities, and
- Income trusts
While it is always recommended to contribute each year to an RRSP there are other savings options available to you that might suit your personal needs better, such as a TFSA (Tax Free Savings Account) or RESP (Registered Education Savings Plan).
Your Rothenberg Capital Management Advisor will be happy to talk to you about the options that are best for you.