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Poll:RRSP 101 (All RSP questions answered)
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I find this info useful, thanks. 83% (20)
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RRSP 101 (All RSP questions answered)




Hi Friends,

I have noted down some genreal RRSP questions, i receive as a personal banker, and tried to answer them in simple terms.


1. What is RRSP ?
Ans. Registered Retirement Savings Plan

2. What is the use of RRSP?
Ans. To save for retirement, and for tax benefits.

3. What tax benefits can I get?
Ans. Any money you save in a RRSP account is tax deductible upto your "contribution limit". However you will pay tax when you take money out of the RRSP account or at the age of retirement. (I will explain more on taking out money without paying tax)

For Example: Your income is $30000 and you pay 33% tax. If you contribute $2000 this year you will get a tax refund of $660 (this is not including other refunds you may get)

4. What is an RRSP account?
Ans. It is just like a bank account, you can open it with any bank in Canada. Also you can save money in different types of RSP's. For example: If you want to save $2000 in RRSPs, you can put $1000 In a GIC within the RSP i.e., RRSP-GIC and $1000 in a Mutual Fund RRSP. Or if you want to save regularly, say $100 ever month - you can have a simple RSP account.

5. How many RRSP's can I have?
Ans. As many as you like, and in 2-3 different banks if you wish, but you can only contribute upto your limit every year. This is called \"Contribution Limit\" , it is given on your Notice of Assessment (i.e. this year's NOE will give your limit for next year)

6. Can i contribute in the name of my wife/husband?
Ans. Yes, you may - even if your spouse is not working. You as the contributor will receive the tax receipt and benefits.

7. How to claim the tax benefits?
Ans. When you put money in a RRSP account, your bank will issue an \"RRSP Contribution Receipt\". You can attach the receipt when you file your taxes to get your refund.

8. What happens if i take money out of the RRSP account?
Ans. You will pay a \"Witholding Tax\" to the CRA and the amount will count as income for your next year's taxes.

For Example: If you withdraw $5000, 10% i.e., $500 will be deducted and you will get $4500, then you will have to pay tax on $4500 when you file your taxes.

9. How can I avoid Taxes when I withdraw from my RRSP account?
Ans. There are 2 cases when you can withdraw without paying tax:

(1) First time Home Buyer's Plan (HBP): Under this plan you can take upto $20,000 out of the RRSP account balance, without paying tax, if you are a frist time home buyer. Your spouse can also withdraw under HBP.

For Example: If you have $20,000 and your spouse has $20,000, in RRSP accounts. Lets say both are paying 33% income tax. When you buy your first house you can take $40,000 without any deduction. So you end up saving $13200. In other words - the government gave you a break because you are buying a house.

(2) Life Long Learning Plan (LLP): You can withdraw without tax, if you are going for higher studies (like MBA/MS). LLP works the same way as HBP., except the limit is upto $10,000 per year - and $20,000 max.

Some other rules apply for LLP, please refer to CRA website.

10. Is it complicated to invest in RRSP's?
Ans. No, because, it is your banker's responsibility to fill the forms and give you tax receipts.

Also, please refer to the RRSP section at CRA website> http://www.cra.gc.ca" rel="nofollow">LINK


Hope this helps you take advantage of tax benefits available to all Canadian residents, if you have questions - please ask here.

Sincerely,


 
Last edited by: TO-Puttar on 23-10-06 02:07:23
TO-Puttar

Junior Desi
Member since: Jan 06
Posts: 15
Location: Toronto

Post ID: 77319 29-05-06 02:19:07
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Big Vee
Senior Desi
Member since: Jan 05




Posts: 456
Location: Canada-Glorious and Free

Excellent Overview...
Thank you for that lesson in RRSPs, TO-Puttar.

I want to show CDs how to split incomes using RRSPs in cases where one of the spouses is earning less than the personal amount (around $ 9,000 pa). This is also a way to withdraw money from an RRSP without taxes.

The spouse earning more than $9,000 pa can contribute to a spousal RRSP. This is Point #6 in TO-Puttar's overview. The RRSP is in the name of the spouse earning less than $ 9,000 pa. The contributing spouse gets the tax benefit of the contribution.

Later, it can be withdrawn by the lower income spouse and reported as income on his/her tax returns. The amount withdrawn may be subject to withholding which is refunded when the Tax return is filed. There is no tax implications since the amount is lower than the personal amount.

NOTE:- the amount should be less than the personal amount for your province. Timing is critical and you should consult a financial planner to help in this matter.

BV


 
Post ID: 77334 29-05-06 09:56:27
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TO-Puttar
Junior Desi
Member since: Jan 06




Posts: 15
Location: Toronto

withdrawal from a Spousal RRSP
Quote:
Originally posted by Big Vee

Later, it can be withdrawn by the lower income spouse and reported as income on his/her tax returns. The amount withdrawn may be subject to withholding which is refunded when the Tax return is filed. There is no tax implications since the amount is lower than the personal amount.

NOTE:- the amount should be less than the personal amount for your province. Timing is critical and you should consult a financial planner to help in this matter.

BV

:up:
Hi BV,

In general it is safe to follow this example:

If Mr.X contributes $5000 in 2006 - to his spousal RSP in the name of Mrs.X.
Mrs. X as the planholder cannot withdraw this 'new contribution' till Mr.X files his taxes in 2007 and reports his spousal RSP contribution. If she does then the witholding tax ($500) will not be refunded and Mr. X would have to show $4500 as his 2006 income.

As BV said, tell your FA/banker that you want to avoid tax, and the banker will tell you when you can withdraw.


 
Last edited by: TO-Puttar on 29-05-06 16:25:08
Post ID: 77398 29-05-06 15:25:23
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BlueLobsterMember of Administrators
Admin
Member since: Oct 02




Posts: 3409
Location: Mississauga


Good stuff, guys!

I'll make this post a sticky, please continue all RRSP related info here.

Thanks!

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Are you there?

 
Post ID: 77399 29-05-06 15:28:50
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Toronto_Puttar
Junior Desi
Member since: Dec 04




Posts: 15
Location: Toronto

Msg from Sudershan
Quote:

5. The RRSP Contribution Limit is given in your prior years notice of assessment issued by CRA

6. Once the money goes into a spousal account, only the spouse has access to that money. Even you as a contributor cannot withdraw.

8. The amount withdrawn is considered as income in the year in which the withdrawal occurs.

9 For an HBP, the money has to be deposited atleast 90 days prior to withdrawal.

Sudershan



 
Post ID: 77404 29-05-06 16:02:49
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Big Vee
Senior Desi
Member since: Jan 05




Posts: 456
Location: Canada-Glorious and Free

What can you invest in?

You can hold many kinds of investment in an RRSP. From savings account, GICs, Stocks, Bonds, mutual funds and even mortgages. There is no limit to the types of investment vehicles you can use. There is no limit to the financial institutions you can use. With the recent removal of foreign content restriction you can invest in any of those vehicles above in any country. So you could hold stocks from Mumbai, Bonds from Dubai and mutual funds from the UK.

BV


 
Post ID: 77436 29-05-06 21:27:01
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sw33tc0rn
Junior Desi
Member since: May 06




Posts: 5
Location:

RRSP contributions
Hi Friends,

Can I contribute in my spouse's name even though she is unemployed for the entire year?

Any details / pointer are appreciated.



By TO-Puttar \"

6. Can i contribute in the name of my wife/husband?
Ans. Yes, you may - even if your spouse is not working. You as the contributor will receive the tax receipt and benefits. \"



 
Post ID: 84801 01-09-06 18:05:19
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Val
Senior Desi
Member since: Oct 03




Posts: 189
Location: Toronto


I have not opened up a RRSP as yet, can you advise .For how many years one can carry forward RRSP contribution limit.

Can I hold RRSP investments in U.S.Currency

Thank you


 
Post ID: 88226 22-10-06 17:54:38
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reachash
Senior Desi
Member since: Dec 03




Posts: 397
Location: Mississauga


Overall a very informative post...but I beg to differ on few of the points and for the benefit of members I am posting my views on the same as under,

Quote:
Originally posted by TO-Puttar

3. What tax benefits can I get?
Ans. Any money you save in a RRSP account is tax deductible upto your "contribution limit". However you will pay tax when you take money out of the RRSP account or at the age of retirement. (I will explain more on taking out money without paying tax)

For Example: Your income is $30000 and you pay 33% tax. If you contribute $2000 this year you will get a tax refund of $660 (this is not including other refunds you may get)



IMHO....although majority of us may end up saving on total tax payable....but there is no gauantee of the refund amt...it can vary based on individual situation.....please consult your accountant

Quote:
Originally posted by TO-Puttar
5. How many RRSP's can I have?
Ans. As many as you like, and in 2-3 different banks if you wish, but you can only contribute upto your limit every year. This is called \"Contribution Limit\" , it is given on your T4.



The ontribution limit of a particular year is showing up on pr year's NOA(Notice of assessment)...not on T4....for example, if you want to find out the max limit that you can contribute, please check bottom portion of the second page of your notice of assessment from previous year.....so to be precise...one can't start contributing to RRSP till first inome tax return is assessed

Quote:
Originally posted by TO-Puttar
8. What happens if i take money out of the RRSP account?
Ans. You will pay a \"Witholding Tax\" to the CRA and the amount will count as income for your next year's taxes.

For Example: If you withdraw $5000, 10% i.e., $500 will be deducted and you will get $4500, then you will have to pay tax on $4500 when you file your taxes.



I am afraid but it doesn't work this way....the witholding of tax is right...but the % of tax witheld depends on the amt of withdrawal....bank will also issue a recpt for the tax witheld.....but more importantly...the entire amt of withdrawal is added to your total income of the year in which you withdraw from rrsp and then out of total tax payable you deduct the amt of tax witheld and pay only the difference.


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Let's help each other to grow & prosper in Canada

 
Last edited by: reachash on 23-10-06 01:40:00
Post ID: 88242 23-10-06 01:37:13
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reachash
Senior Desi
Member since: Dec 03




Posts: 397
Location: Mississauga


Quote:
Originally posted by Val

I have not opened up a RRSP as yet, can you advise .For how many years one can carry forward RRSP contribution limit.

Can I hold RRSP investments in U.S.Currency

Thank you



You can carry forward your unused contribution limit fo as long as you don't use it....if you need any suggestion, please feel free to call me...

905-897-8346 work # (I work with one of the major banks)

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Post ID: 88243 23-10-06 01:50:12
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