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Orginally posted by Marathi Manus

Hi,

I am living in Canada for over 2 Years. I have not put any money in RRSP. How important is RRSP Savings? Also, if I don't have surplus $$ to put in RRSP...is it advisable to take RRSP Loan for that?

Pls. Advise.

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Whether to put money in RRSP or not depends on many factors. RRSP is a good tool for you to save money for your retirement as the money deposited in RRSP grows \\\"Tax Sheltered\\\". By tax sheltered we mean that whatever income you earn on the RRSP you do not have to pay any tax unless you withdraw the same. And if you withdraw the money at your retirement time, at that time it would be taxed on your level of income at that time and generally after retirement the income level comes down which means you would be in a lower tax bracket at that time and would pay less tax. More over your money would get the benefit of compounding and would grow better.

Secondly, when you put money in RRSP you can claim a tax deduction from your highest tax bracket now. Hence it depends on your level of income. If you are in a higher tax bracket then by putting money in RRSP would save you tax. However, you can only put money in RRSP if you have a \\\"RRSP room\\\" for investment. This \\\"RRSP room\\\" depends on your previous year income and you would come to know of it only after you file your income tax return. The CCRA would send you a notice of assessment which would tell you how much room you have to contribute for RRSP in the following year. You can only contribute up to the amount of your room plus a maximum of $2000. If you contribute more than there is a penalty. Hence you should contact a \\\"Tax professional\\\" for this and I believe we do have \\\" Tax professionals\\\" between our Canadian Desi members and I would request them to write in details about the benefits of RRSP for our new immigrant desis. And if you know you would be getting a good refund, then it is advisable to take a loan and put money in RRSP and pay back that loan when you get refund. The benefit is that it is a forced saving and most banks would give you loan at prime rate which presently is at 4.5% and the return on RRSP could be a little more than that. But the main thing is that you are getting a TAX REFUND which you would not get otherwise.

Thirdly, if you have contributed to RRSP and accumulated some funds there, you can withdraw up to $20,000 tax free if you are buying a house, which would certainly come handy as down payment. However, there are certain conditions for this withdrawal. A first time home buyer can withdraw up to $20,000 to buy a house under the government's first time home buyer plan and he would not have to pay tax on this withdrawal. However, he would have to pay that money back in your RRSP in 15 yearly installments which would start 2nd year after you buy the house.

There are other stategies as well and as I said it depends on each individuals situation and priorities as to whether to put money in RRSP or not. I hope some of our fellow desi \\\"Tax Professional\\\" would through more light on this subject.