Do you know that you should have one but don’t know where to begin? Let us help you!
With the new year upon us, it’s a natural time to think about planning your financial future. Taking stock of your financial health can feel complicated and overwhelming, but it doesn’t have to. One to the easiest ways to start taking charge of your financial security is to begin investing in an RRSP. With tax season and the RRSP contribution deadline right around the corner, now is the perfect time to brush up on RRSP basics, and what an RRSP can do for you later down the line.
1. What is an RRSP?
Most people think of an RRSP as a savings account that you stow away money in for when you retire, and they’d be right. But if invested in effectively, RRSPs are much more than that. RRSPs are a registered retirement savings plan with the Government of Canada that you can contribute to, up to a maximum amount annually, that incurs interest.
2. What are my contribution limits?
Each year, the Government of Canada sets a maximum contribution limit for the amount of money each person can set aside in their RRSP. In 2017, the contribution limit will be $26,010 or 18% of your earned income from the previous year. The good news is that you can carry forward any room in your RRSP from years you did not meet your contribution limit. This means that if you don’t have the money to meet your contribution limit this year, you can plan ahead and still invest the remaining amount next year. For example, if you still had $4,000 left to contribute to your RRSP in 2016, you could invest $30,010 in 2017 to catch up.
3. What are the incentives of an RRSP?
Besides ensuring that you’ll have savings set aside for when you retire, RRSPs offer tax incentives to get you saving as much as you can, as early as you can. There are three main tax incentives you benefit from when investing in an RRSP.
- You are allowed to deduct any RRSP contributions for the year from your annual income.This effectively lowers the amount of income tax you may be expected to pay.
- The money you invest is not taxed as long as you keep it in the RRSP.
- You only pay tax on your investments when you withdraw them from your RRSP. On average, this isn’t done until you retire and are likely to be in a much lower tax bracket than you would be in your prime earning years.
This year’s RRSP contribution deadline is March 1st, 2017. It’s never too early to start. Contact us to learn how a Rae Lipskie portfolio manager can help you plan ahead.