Understand Characteristics of Registered Retirement Saving Plan

As we mentioned in other articles the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. In this article, we will discuss some important characteristics of registered retirement saving plans.

I. Reduce income tax withhold
Contributing to RRSP through pay role deduction will reduce the amount of income tax withheld on your employment income. You pay less income tax over the year, rather than overpaying and then applying for a refund the following year. Usually, Customs & Revenue Canada will permit a reduction in withholdings for RRSP contributions made early in the year.

II. When to make RRSP contributions
On the first day of any year, but you may not know your 2007 RRSP contribution room until February or March because you have to wait until Customs & Revenue Canada advises you of your RRSP limit for the new tax year, it will take several weeks after your previous year tax return is assessed.

III. Carried forward for unused contribution
Your unused contribution amount after 1990 is allowed to carry forward and can be used in any future year.

IV. Investment options
You can invest your RRSP in any eligible investments such as guaranteed investment certificates, government bonds, shares listed on Canadian stock exchanges, corporation bonds instruments listed on Canadian stock exchanges, and units of Canadian-based mutual funds that meet government guidelines.

V. Spousal contribution
a) Contributes to spousal RRSP that qualifies for a tax deduction for you, as long as the total contributions to your plan and your spousal plan do not exceed your contribution limit.

b)When you reach age 69 and must convert your RRSP into a maturity option, if your spouse is younger than you you can maximize your tax-deferral and tax payment by placing your matured RRSP into your spouse's name.

c) RRSP withdrawal by your spouse is taxable to your spouse if you have not made any contribution to your spouse's plan in the past three years.