RRSP`s in Canada – Who are they for?
An RRSP is a retirement savings plan that you establish, that the CRA registers, and to which you or your spouse or common-law partner contribute.
With the federal government’s Home Buyers’ Plan, you can use up to $25,000 of your RRSP savings ($50,000 for a couple) to help finance your down payment on a home. To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. You must also provide a signed agreement to buy or build a qualifying home.
OTHER BENEFITS – Deductible RRSP contributions can be used to reduce your tax. March 1, 2018 is the deadline for contributing to an RRSP for the 2017 tax year. Your right to make a contribution for one year depends on your earned income for the previous year. For 2018, your contribution will be limited to 18% of your 2017 earned income, to a maximum of $26,230.
Getting Established- You set up an RRSP through a financial institution such as a bank, credit union, trust or insurance company. Your financial institution will advise you on the types of RRSP and the investments they can contain. You may instead want to set up a self-directed account if you prefer to build and manage your own investment portfolio by buying and selling a variety of different types of investments.
You may want to set up a spousal or common-law partner RRSP. This type of plan can help ensure that retirement income is more evenly split between both of you. The benefit is greatest if a higher-income spouse or common-law partner contributes to the account for a lower-income spouse or common-law partner. The contributor receives the short term benefit of the tax deduction for the contributions, while the annuitant, who is likely to be in a lower tax bracket during retirement, receives the income and reports it on his or her income tax and benefits return.
You can transfer certain types of payments to a registered retirement savings plan (RRSP) or from one registered plan to another, such as a registered pension plan (RPP), registered retirement income fund (RRIF), specified pension plan (SPP), a deferred profit sharing plan (DPSP), or a pooled registered pension plan (PRPP).
Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan.
The following situations are not considered “contributing to your RRSP” for the purpose of claiming a deduction.
-Repay funds that you had withdrawn under the Home Buyer’s Plan;
-Repay funds that you had withdrawn under the Lifelong Learning Plan.
If you own locked-in RRSPs, generally you will not be allowed to withdraw funds from them. If you do not know if your RRSPs are locked in, contact your RRSP issuer. If your RRSPs are not locked in, you can withdraw funds at any time.
December 31 of the year you turn 71 years of age is the last day you can make a contribution to your RRSP. You can contribute to an RRSP under which your spouse or common-law partner is the annuitant until the end of the year your spouse or common-law partner turns 71.
When you withdraw funds from an RRSP, your financial institution withholds the tax. The rates depend on your residency and the amount you withdraw. For residents of Canada, the rates are:
10% (5% in Quebec) on amounts up to $5,000;
20% (10% in Quebec) on amounts over $5,000 up to including $15,000; and
30% (15% in Quebec) on amounts over $15,000.
For non-residents of Canada, withholding is 25% unless reduced by a treaty.