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Everything you needed to know about RRSPs

IMC Financial Services - Montreal's authority on life insurance / Articles  / Everything you needed to know about RRSPs

Everything you needed to know about RRSPs

Will Government Benefits be Enough? When you reach the age of 65 the government provides you with a modest pension. The question is, will this income be sufficient for you to live comfortably? Most individuals are unaware of what their investment income and living expenses will be at retirement, therefore it is essential to plan as early as possible. By contributing to an RRSP you are guaranteed to supplement the government benefits and provide the retirement income necessary to live with dignity. What is the value of an RRSP? RRSP contributions can reduce the amount of income tax that you pay. Individuals can benefit from immediate tax savings as the RRSP allows them to deduct the amount of contribution from their income on their tax return and the actual cost of the contribution is reduced because of lower taxes. RRSP eligibility Anyone who has earned income in the previous year and filed a Canadian tax return can contribute to an RRSP up until December 31st of the year they turn 71 years of age. After age 71, if you continue to earn income, you can contribute to a spousal RRSP up until December 31st of the year your spouse or common law partner turns 71. Contribution Limits (for 2007) Total annual contributions are the lesser of $19 000 or 18% of earned income from your previous tax year, minus any pension adjustments plus unused contribution room from previous years. You can access your contribution limit on-line at www.cra-arc.gc.ca.

Further Information RRSP contribution room accumulated after 1990 can be carried forward indefinitely to subsequent years. Earned income is defined as self-employed business income, taxable spouse and child support received, & net rental income from real estate and disability pension received under QPP. RRSP Contribution Deadline The deadline for 2007 RRSP contributions is February 29th, 2008. Contributions made during the first 60 days of 2008 can be applied against the 2007 taxation year or any subsequent year. If you turn 71 in 2008 this would be the final year to contribute to your RRSP and you must convert your RRSP to a RRIF by December 31st, 2008. Will Government Benefits be Enough? When you reach the age of 65 the government provides you with a modest pension. The question is, will this income be sufficient for you to live comfortably? Most individuals are unaware of what their investment income and living expenses will be at retirement, therefore it is essential to plan as early as possible.

By contributing to an RRSP you are guaranteed to supplement the government benefits and provide the retirement income necessary to live with dignity. What is the value of an RRSP? RRSP contributions can reduce the amount of income tax that you pay. Individuals can benefit from immediate tax savings as the RRSP allows