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What are RRSPs?
Registered retirement savings plans, or RRSPs, is a government-approved tax-advantaged savings account to help you save for your retirement. Money you contribute to your RRSP can be deducted from your taxes, reducing the overall amount of tax that you need to pay. Then, when you withdraw the money in the future to pay for your own retirement expenses, you pay taxes on withdrawals as if the money is income.
When is the RRSP deadline?
The RRSP deadline for 2018 is March 1, 2019.The RRSP deadline is set as 60 days into the year, but it might flex by a day or so if there is a leap year or the deadline falls on a weekend.
What is the RRSP contribution limit?
The RRSP contribution limit for any year is 18% of the earned income you reported on your taxes for the previous tax year, up to a specific maximum each year:
| Year | RRSP dollar contribution limit |
|---|---|
| 2019 | $26,500 |
| 2018 | $26,230 |
| 2017 | $26,010 |
| 2016 | $25,370 |
| 2015 | $24,930 |
| 2014 | $24,270 |
Your RRSP contribution room is the sum of all your previous year’s contribution limits, minus any contributions you’ve made over the years.
Are RRSPs really worth it?
Whether RRSPs are really worth it for you depends on your personal situation. RRSPs are a tool for tax deferral, meaning that you can contribute money when you have a high rate of income tax, and then with withdraw that money when you have a lower tax rate.RRSPs can also be used as an income-splitting tool. You can open a spousal RRSP. which permits higher-income spouses to contribute to the RRSP of a lower-income spouse. Over time, that money becomes the property of the lower-income spouse, and when they withdraw the money in the future it is taxed at their individual tax rate. By splitting income between the members of a couple you can potentially pay lower tax rates overall.
When should you withdraw from RRSPs?
Withdrawing from an RRSP can be an expensive proposition. There are a few times when you should withdraw from your RRPS though (or at least consider the option):If you need the money and your expenses in that year are lower than your taxes in the year you made the contributionIf you are withdrawing money using a special program such as the RRSP Home-Buyers Plan or the Lifelong Learning PlanIf you need the money to support yourself in retirement
What are the benefits of an RRSP?
RRSPs are a tool for saving for your retirement. They let you defer paying taxes on income into the future, which means you can save on taxes by withdrawing after retirement when your income is presumably lower, and your tax rate will have decreased.
Can you take money out of your RRSP?
You can take money out of your RRSP. If you use the Home-Buyers Plan or the Lifelong Learning Plan. Those withdrawals are considered to be loans, and you need to repay your RRSP (via contributing) over a specific period of time, or the money you borrowed will be considered part of your income and declared as tax.You can also withdraw money from your RRSP, but you will face an immediate withholding tax upon withdrawing the money (which you might be able to get refunded in your income tax return) and you then have to pay taxes on any withdrawal as if it were income.
Can you use your RRSP to pay off debt?
Yes, you can use your RRSP to pay off debt, but you should only do so if the circumstances make sense. If you withdraw money from your RRSP you pay taxes on it as if it were income, so withdrawing funds to pay your debt might leave you with an unexpected surprise when it comes to tax time. Be sure to speak to an income tax professional before withdrawing the funds to ensure that the numbers add up for you.
What are RRSP GICs?
RRSP GICs are a product that you can invest in with your RRSP. RRSPs aren’t an investment product, they are more like a box in which you can put any of your investments, such as a savings account, an RRSP GIC, or even an account with a robo-advisor.RRSPs are often described in comparison to another registered investment product, the tax-free savings account or TFSA. To learn more about TFSAs, check out our article called “What is a TFSA?”.