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Registered Retirement Savings Plans Commonly referred to as an RRSP, this is a tax sheltered and tax deferred savings plan introduced by Revenue Canada in 1957 to encourage people to save for their retirement. RRSPs are recognized by the Federal and Provincial tax authorities, whereby deposits are fully tax deductable in the year of deposit and fully taxable in the year of receipt. The ability to defer taxes on RRSP earnings allows one to save much faster than is ordinarily possible because earnings compound tax free throughout the life of the plan. Canadian taxpayers who are eligible to contribute to an RRSP receive a notice from Revenue Canada concerning the amount of their contribution limit with their income tax notice of assessment each year. Staying within this contribution limit, a person may have as many different RRSP's as one wants. For 2006, a taxpayer can deduct contributions made to his/her RRSP from January 1, 1991, to March 1, 2007. The maximum RRSP deduction limit for 2006 is the lessor of 18% of earned income for 2006 or $18,000. However, if a taxpayer did not use all of his/her RRSP deduction limit for the years 1991 to 2005, the unused portion can be carried forward to 2006. Therefore, a taxpayer's RRSP deduction limit for 2006 may be more than $18,000. The Federal Government has indicated that RRSP limits in coming years will be; $19,000 for the year 2007; $20,000 for the year 2008; $21,000 for the year 2009; $22,000 for the year 2010 and from the year 2011 and onwards, indexed to average wage growth rate. Eligible investments for RRSPs include cash, deposit accounts, bonds, stocks, mutual funds, segregated funds, and guaranteed investments. The the holder of an RRSP must convert it into income by the end of the year in which the holder turns age 69. The choices for conversion are to simply cash it in and pay full tax in the year of receipt, convert it to a Registered Retirement Income Fund (RRIF) and take a varying stream of income, paying tax on the amount received annually until the income is exhausted, or converting it into an annuity with guaranteed payments for a chosen number of years or for life, again paying tax each year on income received. While the primary importance of an RRSP is to defer a part of your income until retirement years, there is nothing to prevent you from using some of these savings as emergency funds to carry you through a period of unemployment or maybe a planned sabbatical from work. Spousal Registered Retirement Savings PlanThis is an RRSP owned by the spouse (plan holder) of the person contributing to it. Contributions to a spousal RRSP are given, not loaned. Once the money is in the plan, it is under the spouse's (plan holder's) control. Amounts withdrawn from a spousal RRSP will be taxed back to the contributor if the withdrawal is made within 3 years of the contribution date. (Since Revenue Canada considers the 3 years to be 3 calendar years, it is possible to contribute to a spousal RRSP on December 30th of the first year and 2 years later the spouse (plan holder) may access the money with it being taxed to the spouse (plan holder). To be eligible for spousal contributions, the spouse must be legally married to the contributor or have common law status as defined in the Income Tax Act, Section 252(4). Note: In the past, plan holders could set up a series of spousal plans for each spousal contribution and surrender each as it passed the 3 year eligibility period, thus avoiding the attribution rules. In 1990, Revenue Canada began emphasizing the any rule so that there would be attribution if spousal contributions had been made into any plan. If the contributor so wishes, he/she can direct up to 100% of eligible RRSP deposits into a spousal RRSP each and every year. Contributing to a spouses RRSP reduces the amount one can contribute to one's own RRSP, however, if the spouse is a lower income earner, it is an excellent way in which to prepare for the spliting of income for lower taxation in retirement years. Let us be very clear in pointing out that whatever you contribute to your spouses RRSP is a full deduction from your own taxable income in the year for which you make the contribution. A contributor's deposits into his/her spouse's RRSP does not limit the amount which that spouse may be able to contribute to their ownn RRSP. While the immediate tax reduction for a contributing spouse look like good tax planning, it would be prudent to make spousal contributions with the view that the future withdrawal of those funds is tax efficient. In other words, if one of the spouses expects to continue working after age 70 or if one of the spouses expects a large inheritance which might generate substantial income after age 70 then decisions made now without some planning could have negative tax consequences in the future. The RRSP rules direct that you can no longer contribute to your own RRSP after the end of the year in which you become 69 years of age but if you are still earning income, contributions can be made to a spousal RRSP until that spouse reaches the age of 69. Whether it's your own RRSP or a spousal RRSP we are able to advise you in the best way to preserve your capital and to take advantage of opportunities for solid future gains. We firmly recommend the advantage of having your RRSP's with insurance companies in order to enjoy the security of creditor proofing and, in the event of death, the avoidance of probate fees. If you have investments which are coming to maturity and you are not satisfied with the low interest rates you are currently receiving, let us show you how easy it is to transfer your investment from where it is now to one of our insurance company funds that is secure and well managed. You may contribute to your RRSP until December 31 of the year in which you reach age 71. The following limits and deadlines apply annually Maximum annual RRSP contribution limits
Your allowable RRSP contribution for the current year is the lower of:
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