Planning to save for retirement? Contribute to a RRSP!
The Walton Financial Group in Barrie, Ontario outlines the fundamentals of an RRSP
What is an RRSP?
A Registered Retirement Savings Plan (RRSP) is a savings account designed to help Canadians save for retirement.
Contributing to an RRSP
How much you can contribute to your RRSP depends on your deduction limit, often referred to as your “contribution room”. Your contribution room is the maximum amount you can deduct to reduce taxes for a given year. To find out your contribution room for the current year, refer to your most recent Notice of Assessment from the CRA, which can be found on your previous year’s tax return.
Calculating your contribution room
The maximum RRSP contribution and deduction limits are determined as follows:
• 2021: 18% of previous year’s earned income up to $27,8301
Plus:
• Current year’s Pension Adjustment Reversal (PAR)
• Unused contribution room carried forward from
previous years
Minus:
• Previous year’s Pension Adjustment (PA)
• Current year’s Past Service Pension Adjustment (PSPA)
RRSP Maturity Options
You can make contributions to your RRSP up to and including the year in which you turn 71. Your RRSP must mature by December 31 of that year, at which time,
you will have three options:
1. Cash out the plan – the full value of the lump sum withdrawal will be added to your income for the year and taxed accordingly
2. Use the funds in the plan to purchase an annuity
3. Convert the plan to a Registered Retirement Income Fund
(RRIF)
Spousal RRSP
Contributing to a spousal RRSP can help defer tax for the higher income earner and potentially reduce the family’s overall tax bill at retirement. A spousal RRSP allows you to contribute to your spouse’s or common-law partner’s RRSP, up to your personal contribution room.
• Contributor claims the deduction for contributions to a spousal RRSP
• Deduction limit is based on the contributor’s RRSP contribution room
• Plan and assets within the RRSP are controlled by the spouse
• Withdrawals will be added to the contributor’s taxable income, unless the contributions are held in the plan for at least two years after the end of the year in which the last contribution was made
These are the fundamentals of the RRSP. Contact the Walton Financial Group in Barrie, Ontario to set up a meeting with a financial planner for advice about how best to incorporate RRSPs into your financial plan.
