R egistered R etirement S avings P lan (RRSPs)

What is a RRSP ? An RRSP (Registered Retirement Savings Plan)  is a personal savings plan registered with the Canadian federal government allowing you to save for the future on a tax sheltered basis.

Types of Investments i n your RRSP: oGuaranteed Investment Certificates (GICs) Certificates (GICs) oTreasury Bills (T-Bills) oMutual Funds oStocks and Bonds oEquities oCanada Savings Bonds oMortgage-backed securities oIncome Trusts

How much can I put into my RRSP? Generally, the amount you can contribute to your own RRSPs or your spouse or common-law partner's RRSPs, for a given tax year without tax implications is determined by your RRSP deduction limit. This is often called your "contribution room." Amounts that you contribute above this limit may be considered excess contributions (over-contributions). excess contributionsexcess contributions

How much can I put into my RRSP? The maximum RRSP deduction limit for 2012 is $22,970. However, if you did not use all of your RRSP deduction limit for the years , you can carry forward unused RRSP contributions to Therefore, your RRSP deduction limit for 2012 may be more than $22,970. unused RRSP contributionsunused RRSP contributions The maximum RRSP deduction limit for the subsequent year is as follows: $23, $23,820

An RRSP is special because… Contributions are tax deductible taxes from income are exempt taxes from income are exempt Tax sheltered Portfolio can grow without Portfolio can grow without being taxed, unless funds are withdrawn are withdrawn

Why Consider RRSPs?? RRSP’s can reduce your annual tax bill Add comfort, for individuals who don’t have a company pension plan So all their retirement needs are met Used as a source of financing Ex. purchasing your first home or continuing education Ex. purchasing your first home or continuing education Available to individuals who anticipate fluctuations in their income Ex. for maternity leave, career change, employment interruptions Ex. for maternity leave, career change, employment interruptions

Benefits of RRSPs: 1.Immediate tax benefits at a time when your income is generally highest at a time when your income is generally highest 2.Sheltered from tax income earned on your RRSP is not taxed until it is withdrawn income earned on your RRSP is not taxed until it is withdrawn By the time you begin to withdraw the funds at retirement, you will probably be in a lower tax bracket than your earning years. Funds withdrawn at that time will benefit from this lower tax rate By the time you begin to withdraw the funds at retirement, you will probably be in a lower tax bracket than your earning years. Funds withdrawn at that time will benefit from this lower tax rate 3.Reduces the amount you pay in income tax

Example of an Immediate Benefit…. $0 RRSP Contribution $5000 RRSP Contribution Taxable Income $45,000=$45,000-$5,000=$40,000 Tax$11,700$10,400 Deferred Tax $0$1,300 Here is an example of an immediate tax benefit, if you invest $5,000 into your RRSP in a year, and your taxable income is $45,000. The tax rate is 26%. Therefore, you save $1,300 in taxes.

Can you take out the money in your RRSP before you retire? Yes, you may. But, the funds withdrawn from your RRSP will be charged “withholding taxes.” When you take money out of your RRSP, it becomes income and therefore it is taxed. Government sends an RRSP receipt with the funds withdrawn for the year, on taxable income.

Can I spend the money in my RRSP before retirement without being taxed? Lifelong Learning Plan (LLP)  Can withdraw up to $10,000 tax free a year, to help pay for yourself or spouse to continue education.  Must repay at least 10% per year for up to ten years  You must be enrolled in a full- time program  You cannot use this to finance your children’s education

Can I spend the money in my RRSP before retirement without being taxed? First Time Home Buyers' Plan (HBP) Ability to withdraw up to $25,000 from your RRSP, to buy or build qualifying home for yourself (However your money must be in your RRSP for 90 days leading up to the withdrawl) Ability to withdraw up to $25,000 from your RRSP, to buy or build qualifying home for yourself (However your money must be in your RRSP for 90 days leading up to the withdrawl) If purchasing house with a spouse, both can take up to $25,000 in their accounts. If purchasing house with a spouse, both can take up to $25,000 in their accounts. Must be repaid within 15 years. Must be repaid within 15 years.

In the Event of Death… Proceeds of the RRSP goes to beneficiary, or to the estate if no beneficiary was designated Beneficiary is identified on the RRSP, or the RRSP holder’s will

Event of Death: RRSP will remain tax-sheltered if…  Surviving spouse is the beneficiary  Proceeds are transferred to an RRSP under his/her name  No surviving spouse, but have children or grandchildren, named as the beneficiary  Children or grandchildren, regardless of age, are financially dependent because of physical or mental disability

Types of RRSPs: 1) A Basic RRSP For individuals who want a simple savings account, under their own name For individuals who want a simple savings account, under their own name Available at the bank/financial institutions Available at the bank/financial institutions Offers a smaller range of investment choices Offers a smaller range of investment choices Some advice from staff Some advice from staff May/may not have to pay investment costs, commission fees May/may not have to pay investment costs, commission fees

Types of RRSPs: 2) A self-directed RRSP For individuals who feel they know enough to choose their own investments Available at brokerage firms Offers wider range of investment choices, without advice Have to pay cost for plans and investment costs

Types of RRSPs: 3) A group RRSP at work Available at workplace Each individual has their own RRSP, but it is managed by the same insurance, bank or mutual co. Offers a wide range of investment choices Funds deposited directly after pay cheques Employer can add money to group RRSP Employer can add money to group RRSP Employer pays cost of plan, you must pay investment costs

Types of RRSPs: 4) A Spousal RRSP Available for qualified individuals: who are married, who are married, lived together for more than 12 months, lived together for more than 12 months, have a child together by birth/adoption have a child together by birth/adoption Contribute their money into spouse’s RRSP Balancing their income, and reduces tax at retirement Balancing their income, and reduces tax at retirement

Who should NOT contribute into an RRSP? Individuals in a lower tax bracket Such as children and young workers Such as children and young workers

Is the money in your RRSP Safe? No, just because money is held in your RRSP, investors should not assume their funds are safe.

Why are they not necessarily safe ? Ability to lose money depending on type of investments chosen Example: Stocks. Example: Stocks. Value of RRSP portfolio can fluctuate day to day Value of RRSP portfolio can fluctuate day to day

Carry Forward When an RRSP investor can not make the maximum contribution one year, so it is brought forward to the next couple of years An individual may choose to delay claiming their current year's RRSP tax deduction. To take the deduction in a later year, you must make sure that your allowable deduction limit has not been reached. An individual may choose to delay claiming their current year's RRSP tax deduction. To take the deduction in a later year, you must make sure that your allowable deduction limit has not been reached.

COSTS $$$ to set up an RRSP... Will vary depending on types on investments: A fee to open your RRSP account A fee to manage/hold your RRSP account A fee to manage the mutual funds in your plan A fee to set up a self-directed RRSP A fee when you buy/sell stock in a self-directed RRSP

More Information on RRSPs.... You can contribute to your RRSP until December 31st on the year you turn 71. When you reach 71, you can then: cash in your RRSP cash in your RRSP transfer the investments in your RRSP to a Registered Retirement Income Fund (RRIF), or Registered Annuity, from which you must begin drawing retirement income. transfer the investments in your RRSP to a Registered Retirement Income Fund (RRIF), or Registered Annuity, from which you must begin drawing retirement income.

Remember, it is beneficial to invest in RRSPs, as soon as possible. It lets you save for your future, while helping you save tax money. It lets you save for your future, while helping you save tax money.