Every year, RRSP season prompts people to review their savings and retirement plans. Here are four useful facts about the Registered Retirement Savings Plan and tips on how to use it.
18% = Maximum annual contribution in your RRSP
The maximum annual contribution you can put into your RRSP is 18% of your previous year’s net income. For the year 2020 this maximum is $27,230 and this amount increases each year with inflation. This annual contribution room may be carried forward in whole or in part to a subsequent year if not used. Each year, when you receive your Notice of Assessment from Revenue Canada for the previous year’s taxes, the report indicates your RRSP contribution room for the current year. It is advisable to maximize your RRSP contribution each year. But it’s not so easy when you’re struggling to make ends meet. Click here for tips on how to save money and start contributing to your RRSP.
1% = Interest if you exceed the limit
If you exceed the maximum 18% RRSP contribution in a particular year, you will be subject to a fine. This amount is 1% per month on the excess amount. However, you are given a $2000 cushion on which you will not be penalized. However, you must understand that this amount will be taxed twice rather than once. That is, you cannot deduct it from your income in the year you contribute, but you will be taxed the day you withdraw the $2,000. However, the return earned on the $2,000 will accumulate on a tax-sheltered basis until the time of withdrawal, just like any other contribution.
71 = Age at which RRSPs must be paid out
This is the age at which you must convert your RRSP to a RRIF (Registered Retirement Income Fund). An RRSP is a tax-sheltered savings vehicle. The RRIF allows you to disburse them at the rate you want. However, there is a minimum amount to be taken out of your RRIF each year. This minimum amount is a percentage of your total amount in the RRIF and increases each year. However, the amount itself decreases each year as you withdraw money annually.
RRIF withdrawals are added to your income and are subject to income tax. This income includes all sources of cash inflows, except the TFSA, which is not taxable on disbursement. RRSP contributions reduce your taxes, but the government takes back some or more of it by taxing your RRIF withdrawals. This will depend on your tax rate at the time of withdrawal.
35 000 $ – “HBP” your RRSP
HBP is the Home Buyer’s Plan program. The HBP is a program that allows you to withdraw money from your RRSPs without any taxes being withheld. This amount is used as a down payment on a first-time home purchase for yourself or a person with a disability depending on you. The maximum eligible amount for an HBP is $35,000 per buyer. In addition, this $35,000 must be returned to your RRSP over a maximum period of 15 years or 180 months. Otherwise, you will be taxed on the amount not returned to the RRSP.
So, if you want to start saving to eventually contribute to a Registered Retirement Savings Plan, click here!
Source: IG Wealth Management – https://www.ig.ca/fr/articles/2021/02/le-reer-en-quatre-chiffres