is an RRSP?
A Registered Retirement Saving Plan (RRSP) is a savings plan for individuals
which allows them to defer tax on money to be used for retirement. Contribution
limits for registered retirement saving plans are based on income and
are tax deductible at the time of deposit. Tax is paid when investment
and interest, or dividend income, is withdrawn.
much can I contribute to an RRSP?
You may contribute up to 18% of the previous year’s income up to a maximum
of $22,970 for 2012. However, if you participate in a pension plan,
a pension adjustment factor will lessen the money you can contribute
to your RRSP. Your RRSP deduction limit is shown on your Notice of Assessment
or Notice of Reassessment for the previous tax year. You can call automated
Tax Information Phone service (T.I.P.S) at 1-800-267-6999, or call individual
income tax enquires line at 1-800-959-8281.
is a spousal RRSP and what are its benefits?
A spousal RRSP is an RRSP to which one spouse contributes for the other.
The contributing spouse will receive a deduction from his or her taxable
income, where as funds received out of the plan will usually be included
in the receiving spouse’s income. A spousal RRSP will be advantageous
if the contributing spouse is likely to have the higher income at retirement,
thereby affecting an income-splitting benefit. Another advantage of
a spousal RRSP arises from the fact that the RRSP maturity deadline
is based on the age of the spouse.
is a RRIF?
A RRIF, like an RRSP, is a tax sheltered investment plan designed to provide
you with retirement income. Unlike an RRSP, you may no longer contribute
to the plan and must withdraw at least a minimum amount per year depending
on your or your spouse's age. The money withdrawal from RRIF is taxed
as income. RRSPs must be converted into a RRIF in the year you turn 71,
otherwise the entire value of your RRSP will be paid out to you on January
of the following year and will be considered taxable income for that year.
Depending on your tax bracket, you could pay up to half of the value of
your RRSP in Tax.