RRSP Investing: Striking a balance between spending and saving
No matter which stage of life you’re at, you probably have competing demands for your money. Whether it’s paying down debt, saving for a down payment, funding your children’s education or making home renovations, there’s always something else to spend on.
But even if you feel there’s no more money left, you can still find pain-free ways to save for your future, and in particular, your retirement years.
This guide is designed to provide an overview of Registered Retirement Savings Plans (RRSPs). It will review the many advantages they provide, including tax benefits, a wide range of investment options and most importantly, the ability to ensure that you have enough income to enjoy a comfortable retirement.
With the help of your financial advisor, you’ll gain peace of mind when you choose registered investments as the foundation of your long-term investment strategy. Your advisor can recommend investments that will help your RRSP grow with your needs, while reflecting your comfort with risk.
More than 50 years ago, the federal government introduced RRSPs to encourage Canadians to plan and save for their own retirement instead of relying solely on public pension plans.
The RRSP has evolved over the last half century, giving investors increased incentive to save for their retirement.
Most fundamentally, the growth on investments inside an RRSP is tax-deferred, meaning you don’t immediately pay tax. Any interest, capital gains or dividends earned will compound tax-deferred. Money is taxed – as ordinary income – only when you remove it from the plan. In addition, you get a deduction from the annual taxable income you earn for every dollar you contribute to your RRSP.
An effective way to save for your retirement
RRSPs provide a significant opportunity for Canadians to save and investors generally recognize them as the best way to save for retirement.
Public pension plans – Old Age Security and Canada Pension Plan – together provide a maximum of $19,956 annually to individuals aged 65 and older.
Also, unless you participate in an extremely generous plan, a corporate pension plan alone cannot meet your income needs throughout retirement.
Key benefits of an RRSP
- Investments compound tax-deferred as long as they remain in the plan
- Choose your investments from a wide range of options
- Contributions are tax-deductible
Frequently asked questions
When is the RRSP contribution deadline?
How much can I contribute to my RRSP?
How can I find out exactly how much I can contribute?
What is considered ’earned income’?
What if I don’t contribute my maximum amount?
What if I contribute more than the limit?
What can I include in my RRSP investment portfolio?
What about foreign content levels?
Is it a good idea to borrow money to invest in my RRSP?
If my spouse and I decide to open a spousal RRSP, who makes the contributions?
Can I withdraw from my RRSP?
Can I reduce withholding tax by withdrawing $5,000 or less on separate occasions?
When does my RRSP mature?
1. Source: Service Canada. Current to 2016.
2. Generally, a “prohibited investment” will include debt of an annuitant (other than certain insured mortgages) and investments in entities in which you or a related person has a significant interest (generally 10% or more) or with which you do not deal at arm’s length. If you hold a “prohibited investment” a 50% penalty will be applied to the fair market value of the investment at the time it was acquired or became prohibited. The penalty will be refunded if you dispose of the investment by the end of the year following the year it was acquired or became prohibited.
3. Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.
Call your financial advisor for more information on RRSP investing with Mackenzie Investments.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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This should not be construed as legal, tax or accounting advice. This material has been prepared for information purposes only. The tax information provided in this document is general in nature and each client should consult with their own tax advisor, accountant and lawyer before pursuing any strategy described herein as each client’s individual circumstances are unique. We have endeavored to ensure the accuracy of the information provided at the time that it was written, however, should the information in this document be incorrect or incomplete or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. We are not responsible for errors contained in this document or to anyone who relies on the information contained in this document. Please consult your own legal and tax advisor.