The majority of Canadians do not have a pension at work. For that reason, the Registered Retirement Savings Plan was established by the federal government. There are several things you might be unaware of if you’re among the approximately 50% of Canadian wage earners who make annual contributions to their RRSPs.
They provide a tax-deduction
Deductions on current taxes are one of the primary advantages of making contributions to your RRSPs. Basically, each dollar you put into your RRSP is taken out of your annual income. As a result, you will pay less in taxes and might possibly be able to drop into a lower tax band. Additionally, if your RRSP investments increase, they are tax-sheltered.
There’s a contribution limit
Canadians are only permitted to make a certain amount of contributions to their RRSPs annually. Up to a maximum of $31,560 for the 2024 tax year, your personal amount is determined by 18% of your income from the prior year. However, any excess can be carried over into the future if you don’t use up all of your contribution space. Your yearly Notice of Assessment from the Canada Revenue Agency contains the amount of your unused contributions.
You can withdraw them before retirement
Typically, if you take money out of your account before the deadline, you will be subject to a significant withholding tax and the withdrawal will be considered taxable income for that year. Yet, there are certain exceptions. For example, if you are eligible to be a first-time homebuyer, you can take out up to $60,000 from your RRSPs to use as a down payment. In the same way, you can take out up to $10,000 annually (up to a lifetime maximum of $20,000) to fund an eligible educational program. Keep in mind that in order to avoid fines, you must repay any money you take out of your RRSPs within a certain time frame in both situations.
They don’t last forever
An RRSP account must be closed by December 31st of the year you turn 71, but many people are unaware of this requirement. You then have three choices: buy an annuity, move the remaining funds to a Registered Retirement Income Fund, or withdraw all of the remaining funds.
You can use you RRSPs to donate
Do you want to establish a lasting legacy and significantly influence a cause that is important to you? You have the option to choose a charity as an RRSP beneficiary. Using a straightforward form provided by your banking institution, you can list all the individuals and/or registered organizations you would like to receive any remaining monies.
Learn more about RSSPs at: https://www.newscanada.com/en/5-things-you-might-not-know-about-RRSPs-140008
Reference: https://www.newscanada.com/
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