Registered Retirement Savings Plan-RRSP

What is the Registered retirement saving plan (RRSP)?

Registered Retirement Savings Plan or RRSP is a type of account defers tax to assist individuals in saving for their retirement years. Introduced in 1957, the RRSP’s purpose is to promote savings for retirement by employees and sometimes contribution of employer. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act.

How much is contribution limit of registered retirement saving plan (RRSP)?

The amount is 18% of the previous year’s earned income up to a maximum of $22,450 ( in 2011) Contribution to RRSP can be up to 31.Dec.of the year in which you reach age 71 and eventually  convert to a RRIF (Registered Retirement Income Fund) account in retirement. Unused contribution room can be carried forward to the following years. The maximum registered retirement saving plan (RRSP) contribution limit for subsequent years is as follows:

  • 2012 maximum RRSP contribution limit: $22,970
  • 2011 maximum RRSP contribution limit: $22,450
  • 2010 maximum RRSP contribution limit: $22,000
  • 2009 maximum RRSP contribution limit: $21,000
  • 2008 maximum RRSP contribution limit: $20,000
  • 2007 maximum RRSP contribution limit: $19,000

What is the tax advantage of RRSP?

In addition, contributions made to RRSP are tax deductible, as long as the contributions are within the allowable limits for that year. Unlike non-registered investment, interest, dividend and capital gain made on investments held within a registered plan, are tax deferred until money is withdrawn.

Where we can save for RRSP?

Rules determine the; maximum contributions, timing of contributions, claiming of the contribution tax credit. Can be deposited in approved assets includeing: savings accounts, guaranteed investment certificates (GICs), segregated funds, Guarantee lifetime withdrawal benefit (GLWB), mutual funds, governmental bond, corporate shares (stocks) and foreign currency accounts.

What is the individual RRSP, spousal RRSP and group RRSP?

In terms of associated individuals (one, two or more) there are three types of RRSP:

1-Individual RRSP

An Individual RRSP is associated with only a single person as an account holder. With individual RRSP, the account holder is also called a contributor, as only individual who contributes money to the RRSP plan.

2-Spousal RRSP

A Spousal RRSP allows a higher earner spouse, to contribute to an RRSP in the spouse’s name. In this case, it is the receiver spouse who is the account holder. The spouse can withdraw money, subject to tax, after period of holding.
A spousal RRSP is a means of splitting income in retirement: By dividing investment properties between both spouses. Each spouse will receive half of the income, and so the marginal tax rate will be lower than if one spouse earned all of the income.

3-Group RRSP

In a group RRSP, upon agreement an employer arranges for employees to make contributions through a schedule of regular payroll deductions.
The employee can decide the amount of yearly contribution and the employer will deduct an amount accordingly and submit it to the investment account manager selected to administer the group account.

What is advantage of group RRSP?

The primary difference individual RRSP with a group plan RRSP is that the contributor realizes the tax savings immediately, instead of waiting till the end of the tax year.

When and how we can withdraw from our RRSP?

An account holder is able to cash out an amount from RRSP at any age. However, any amount withdrawn qualifies as taxable income and is therefore subject to withholding tax.
Before the end of the year the account holder turns to age 71, the RRSP must either be cashed out or transferred to a Registered Retirement Income Fund (RRIF) or an annuity. Previous to 2007, account holders were required to make this decision at age 69 rather than 71.

Is there any exceptional withdrawal from RRSP?

There are two special withdrawal programs for individual RRSP account holders:

  • Home buyer’s plan (HBP)
  • Lifelong learning plan (LLP)

What is the first home buyer plan (HBP)?

It is possible to use RRSP funds to help purchase one’s first home under what is known as the Home Buyer’s Plan. Account holders can borrow, tax-free, up to $25,000 from RRSP (and another $25,000 from a spousal RRSP) towards buying their residence. This loan has to be repaid within 15 years after two years of grace period. This plan can be used more than once per lifetime, as long as the borrower did not own a residence in the previous five years, and has fully repaid any previous loans to the RRSP plan.

What is Lifelong learning plan (LLP)?

Lifelong Learning Plan has designed for temporary period tax-advantage from RRSP account for educational propose. This program allows individuals to borrow from an RRSP to go or return to post-secondary school.

How much is the maximum withdrawal and terms of repaid of lifelong learning plan (LLP)?

The user may withdraw up to $10,000 per year to a maximum of $20,000. The first repayment under the lifelong learning plan will be due at the earlier of the following two dates:

  • 60 days after the 5th year following the 1st withdrawal
  • The 2nd year after the last year the student was enrolled in full-time studies

What is the Guarantee lifetime withdrawal benefit?

Guarantee lifetime withdrawal benefit (GLWB) is an investment product of insurance companies within seg fund. This plan has launched to make lifetime guarantee for retirement time of account holders and give more flexibility for self-employed or even unemployed people. It’s common to transfer existing RRSP’s from mutual funds to this account. To get more information about the detail, please consult with your financial advisor.

What is the Canada pension plan (CPP)?

Canada Pension Plan (CPP) earnings-related social insurance program which is one of the two major Canada’s public retirement income system. (Other is Old Age Security (OAS).
The CPP program contained all employed Canadians who are 18 years of age and over to contribute a prescribed portion of their earnings income to a national regulated pension plan. The plan is administered by Human Resources and Social Development Canada on behalf of employees in all provinces and territories except Quebec.
The maximum CPP in 2011 for qualified people was monthly $934 monthly P/P ($11,210 P/Y).

What is Old age security (OAS)?

Old Age Security pension (OAS) is a taxable monthly social security payment available to most Canadians 65 years of age or older. As of January, 2012, the basic amount is C$540.12 per month. At tax time, recipients with certain amount of income and over must pay back portion of their Old age security (OAS) which regulated by CRA.

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