We interviewed a chartered accountant for a clear and concise crash course on RR$P.
Q: What is an RRSP (Registered Retirement Saving Plan)?
A: It is similar to an account you would open but it offers tax shelter incentive to encourage you to save for retirement. The contribution you put into it is not taxable until you withdraw from it. You can also claim tax deductions.
Q: What is the contribution deadline for the 2018 tax year?
A: It is within the 60th day following the tax year so the deadline for the 2018 tax year is March 1st, 2019.
Q: How much is the annual contribution limit?
A: It is 18% of your income, each year, with the maximum contribution limit of $26,500 for the 2018 tax year. This limit is set by Canada Revenue Agency every year. In addition, you can also contribute up the amount of unused contribution room from previous year.
Q: What if I accidentally contribute over my limit amount?
A: Canada Revenue Agency will impose a penalty of one cent per month for any cumulative excess amount.
Q: Can I open multiple RRSP accounts at different financial institutions?
A: Yes, however, you might not want to do that because you will be paying management fees for each of those accounts.
Q: How should I invest in my RRSP?
A: A medium to low risk balanced portfolio of mutual funds with bonds and stocks.
Q: If I have a pension, do I still need to contribute to my RRSP?
A: You should, though you don’t have to contribute as much. Your Registered Pension Plan limit will reduce your RRSP limit.
Q: When I can withdraw from the RRSP without penalty?
A: When you formally retired, you can begin to withdraw from the fund. However, the account matures when you turn 71. That’s when the account must be converted into a registered retirement income fund (RRIF), and you must withdraw 7.38% from the RRIF in the first year. If you withdraw from the RRSP to buy your first home or to go back to school, you won’t be taxed on the amount.
Q: What happens to the RRSP if I die?
A: It will be transferred to your beneficiary named on your plan.
Q: What happens to my RRSP if I am no longer a resident of Canada?
A: You can still withdraw from your fund but there is a 25% withholding tax on payments to a non-resident out of the plan.