A RRSP (Registered Retirement Savings Plan) is an investment vehicle designed to help investors save for retirement on a tax-deferred basis. Once an investor makes a deposit into his/her RRSP, they will receive a tax deduction against their income.
Investors can contribute up to 18% of their previous years income (less any applicable pension adjustment reversal), up to a maximum amount per year. If a person does not use any of their eligible RRSP tax deduction room, this amount can be carried forward into future years indefinitely, and be used at a later date. The table below shows the current RRSP maximums.
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18% of earned income from the prior year to a maximum of… |
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Year |
Amount |
Year |
Amount |
|
2004 |
$15,500 |
2013 |
$23,820 |
|
2005 |
$16,500 |
2014 |
$24,270 |
|
2006 |
$18,000 |
2015 |
$24,930 |
|
2007 |
$19,000 |
2016 |
$25,370 |
|
2008 |
$20,000 |
2017 |
$26,010 |
|
2009 |
$21,000 |
2018 |
$26,230 |
|
2010 |
$22,000 |
2019 |
$26,500 |
|
2011 |
$22,450 |
2020 |
$27,230 |
|
2013 |
$22,970 |
2021 |
$27,830 |
Investors are allowed a one-time $2,000 over contribution. Amounts over this will be subject to a 1% penalty per month.
Effective June 2005, there are no more foreign content restrictions on RRSP investments. A wide range of investments qualify within Canadian RRSPs including… GICs, stocks, bonds & mutual funds, to name a few.
The Canadian stock market represents less than 3% of the world’s total market capitalization…therefore you could take advantage of growth in the remaining 97% of the world’s investment opportunities. In June 2005, the budget passed law which now makes NO MORE FOREIGN CONTENT RULE RESTRICTIONS for RRSP and RRIF monies invested. This would be retroactive back to January 01, 2005.
RRSP contributions can be made from the moment one reports earned income up until the year the individual reaches age 71. RRSP purchases can be made at anytime throughout the year.
A spousal RRSP is an opportunity to build a retirement portfolio for one’s spouse if he/she does not work, or has little or no pension to be offered from their current employer. The person making the RRSP contribution can place the investment in the name of their spouse while still being entitled to a tax deduction.
Income, interest and capital gains earned in your RRSP are only taxed when taken out of the plan. RRSP withdrawals then become fully taxable.
The following table shows the amount of “withholding tax” for lump sum withdrawls made from an individuals RRSP.
|
Amount |
Percentage |
|
$1 - $5000 |
10% |
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$5000.01 - $15,000 |
20% |
|
$15,000.01 + |
30% |
NOTE: Any additional taxes (if any) to be paid will be determined by your TOTAL INCOME earned in the taxation year.
