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REGISTERED RETIREMENT SAVINGS PLAN (RRSP)

Retirement is an inevitable step in the game of life. Who wouldn't want to come out a winner! All you need to do is gather some basic facts, develop a good strategy and then implement it without delay.

A registered retirement savings plan (RRSP) is a flexible, attractive savings tool. Whatever your age or personal situation, it's never too late to take advantage of the benefits a Registered Retirement Savings Plan (RRSP) can offer. It is important to understand RRSP basics to ensure you choose the right investment options for your RRSP. The sooner you start saving, the more quickly your savings will start working for you.

What is an RRSP ?

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

An RRSP is an investment portfolio - your designated retirement savings. It can contain a variety of investments including: RRSP savings deposits, treasury bills, guaranteed investment certificates (GICs), mutual funds, bonds, and even equities.

What makes an RRSP special is that your contributions to it are tax deductible and your portfolio grows tax sheltered. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan. If you are under 72 years of age and earn income, we encourage you to take advantage of the benefits an RRSP can offer.

Who should have an RRSP ?

Basically, Any person under the age of 72 who has employment income, files a Canadian income tax return, and looks forward to secure retirement should contribute to an RRSP. Under the age of 72 really means that December 31 of the year you turn 71 year of age is the last day you can contribute to your RRSP.

    Here's why:
  1. People who earn income through their employment or self-employment, can reduce their annual tax bill while saving for their future through an RRSP.
  2. For people who have a company pension plan, RRSPs add extra comfort that their retirement needs are met; for those that don't have company pension plans, RRSPs may be the foundation for funding their retirement.
  3. Married couples where one spouse earns more income than the other can reduce their combined tax burden through a spousal RRSP. At retirement, an income-splitting strategy can be applied to reduce overall tax when the funds are withdrawn.
  4. If you are planning on purchasing your first home or are interested in continuing your education, you can contribute to your RRSP, then use these funds as a source of financing
    Truly, the purpose of an RRSP is to act as a retirement vehicle, but an RRSP can offer you benefits through your lifetime as you can see below:
  1. By contributing to an RRSP throughout your working career, you'll realize immediate tax benefits at a time when your income is generally highest. The total amount of your annual contribution can be deducted from your gross income at tax time, reducing the amount you pay in income tax that year.
  2. The income earned in your RRSP is not taxed until it is withdrawn. While your investments remain in your RRSP, their growth is tax sheltered and so the total value may grow more quickly.
  3. By the time you begin to withdraw the funds at retirement, you will probably be in a lower tax bracket than during your earning years. Funds withdrawn at that time will benefit from this lower tax rate.
  4. An RRSP also offers the opportunity to let your savings help you as needed, specifically under the 'First Home Buyes Plan' & the 'Lifelong Learning Plan'. The 'First Home Buyer's Plan' (HBP) is a program that allows you to withdraw up to $25,000 (after January 27, 2009), from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability & the 'Lifelong Learning Plan'(LLP)allows you to withdraw amounts from RRSPs to finance training or education for you or your spouse or common-law partner. You cannot use the RRSP funds to finance your children's training or education, or the training or education of your spouse or common-law partner's children

For more information on the HBP or LLP, we encourage to visit the Canada Revenue Agency website at www.cra.gc.ca

Highlights on the rules & regulations pertaining to RRSP's:

It's important to take the time to understand the details regarding RRSPs. The rules governing RRSPs are set out in the Federal Income Tax Act and are administered by Canada Revenue Agency . Below, we have highlighted the key aspects & we do encourage to visit the CRA website at www.cra.gc.ca for a full list of conditions & regulations.

  1. You may contribute to your RRSP until December 31 of the year in which you reach age 71
  2. The maximum annual RRSP contribution limit for 2010 is $22,000
  3. Your allowable RRSP contribution for the current year is the lower of:
    1. 18% of your earned income from the previous year, or
    2. The maximum annual contribution limit for the taxation year, or
    3. The remaining limit after any company sponsored pension plan contributions
  4. You'll find the exact amount you can contribute to your RRSP for the current year on the Notice of Assessment you receive from Canada Revenue Agency after they process your previous year's tax return
  5. To be eligible for an RRSP deduction in a specific taxation year, you can make contributions anytime during the year, or up to 60 days into the following year.
  6. If you can't make your maximum contribution one year, you can make up that portion of the contribution in later years by carrying it forward. The amount of your unused contribution limit is shown on your federal Notice of Assessment.
  7. You may also choose to delay claiming your 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
  8. If you make an RRSP contribution beyond your maximum allowable amount for a year it is considered an over-contribution. There is a lifetime allowance of $2,000 for over-contributions.
  9. You may open as many RRSPs as you wish. You are free to transfer your RRSPs between financial institutions at any time without being subject to tax. You can also move some or all of your money between eligible investments within your RRSP.
  10. In the event of death, the proceeds of your RRSP are distributed to whoever was named as your beneficiary or to your estate, if no beneficiary has been designated.
    The proceeds of the RRSP will remain tax-sheltered if one of these situations applies:
  1. Your surviving spouse is the beneficiary, and the proceeds are transferred into an RRSP or a Registered Retirement Income Fund (RRIF) in his/her name;
  2. You have no surviving spouse, but you have children or grandchildren who are minors named as your beneficiaries. They are dependent on your estate for financial support and will have the proceeds transferred to a term annuity registered in their names; or
  3. Children or grandchildren, regardless of age, who are financially dependent because of physical or mental infirmity. The RRSP proceeds will be transferred to an RRSP or RRIF registered in their names, or used to purchase an annuity.
  4. In all other situations, the balance of the RRSP at the date of death is included as income on the plan holder's final tax return.

SafeNet Financial Services suggests you take action today to plan for your financial future & consider an RRSP as part of your retirement gameplan !

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