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,

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

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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

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Good stuff, guys!

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

Thanks!

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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

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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

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. \"