Monday, January 30, 2012

RRSP facts – basics you need to know to save

Preparing for retirement should start early with a savings strategy that will make it possible for you to accumulate the most wealth for use (and enjoyment!) through all your retirement years.  The best retirement savings strategy for most Canadians is a Registered Retirement Savings Plan (RRSP) because your contributions and all the income that accumulates in your plan are tax deferred until you start using that money in retirement.  Add in the fact that your contributions can be used to reduce taxes and the magic of compounding that enhances RRSP growth over time, and it’s easy to see why a registered plan makes such good financial sense.

Here are some basic facts that will help you get the most into and out of your RRSP.
  • Be deadline driven This year, the contribution deadline for RRSPs is February 29, 2012 – don’t miss it!
  • Be a maximizer Always make your maximum contribution each year – you’ll get the most in immediate tax savings and in long-term growth. How much you can personally contribute can be found on your most recent notice of assessment from the Canada Revenue Agency (CRA).
  • Play catch up Fill up unused contribution room fast. You can do that in a single year or over a number of years until you reach age 71 – but quicker is better.
  • Match savings to income As you make more money, make larger contributions to your RRSP and you’ll have more income in retirement.
  • Consider borrowing to save An RRSP loan can be a good thing to maximize this year’s contribution or catch up on past contributions – but only if you can get one at a low interest rate and pay it back as quickly as possible. Even better: use your RRSP tax savings to help pay off the loan.
  • Choose a beneficiary Designate a beneficiary for your RRSP (in Québec, this must be done through a will). Generally, RRSP assets do not form part of your estate and do not attract probate fees. If your beneficiary is your spouse/partner or a disabled child/grandchild, your RRSP can be transferred tax-deferred to your beneficiary’s registered plan.
Contributing to your RRSP is an important way to save for retirement – but it’s just one part of a solid retirement plan. Get all the facts (and good advice) from your professional advisor to make sure your retirement dreams blossom into enjoyable reality.

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