How To Get The Most Out Of Your Retirement Savings Plan
When it comes to saving for retirement there is one question that I want to address right from the get-go: what is the difference between a Retirement Savings Plan (RSP), Tax-Free Savings Account (TFSA), and a Registered Retirement Savings Plan (RRSP)?
RSP – A general term for what type of savings you want to partake in for your retirement plan. Notable RSPs include RRSP, TFSA, RPP (Registered Pension Plan), or Non-Registered Accounts (e.g., Cash or mutual funds).
TFSA – This type of RSP is vey common as it is not deductible for income tax purposes. Money contributed (or earned) within this account is generally tax-free, including when it is withdrawn.
RRSP – An account where you can contribute up to 18% of the prior years earned income, or that years limit set by the CRA, whichever amount is less. This contribution then becomes an income deduction on your tax return, in turn reducing your tax obligation.
Important Information for your 2023 RRSP
RRSP limit = $30,780
RRSP contribution deadline for the 2022 tax year = March 1, 2023
TFSA limit = $6,500
RRSP Facts to Note:
Your taxable income for the year is reduced. In some cases it may result in a tax refund, which can be utilized to pay down your mortgage.
You can withdrawal your money if you are buying your first home (see Home Buyer's Plan below) or if you are financing your education.
You don't have to pay income taxes on the money until you remove it from the registered plan. If you withdrawal your funds before retirement to purchase a home or education purposes you will need to pay it back within a certain amount of time. In any other circumstance, part of your withdrawal will be withheld for taxes.
An RRSP can include almost any type of investment, and you can select the ones you are most comfortable with (i.e., mutual funds, EFTs, GICs, etc.).
If you don't use your your full contribution room in the current year it will roll over to the next year(s).
When you reach the age of 71 you will have to close out and convert your RRSP to an Registered Retirement Income Fund (RRIF).
It's never too early to invest in your retirement!
Enjoy this Video where I chat with Millie Gormely, CFP, about RSPs
You might be wondering, why is a mortgage agent telling me about RSPs? The answer is simple – if you are a first-time homebuyer you can use your RRSP contributions towards your down payment!
The Federal Government has a program called the Home Buyer’s Plan (HBP) which allows first-time homebuyers to withdrawal up to $35,000 ($70,000 for a couple) from your RRSP to buy or build a qualifying home for yourself or for a relative with a disability. If you’re interested in learning more about this program, book a meeting with me!
HBP Facts to Note:
You must be considered a first-time homebuyer.
Withdrawing from your RRSP can give you the boost you need to get to a 20% down payment.
You must have a written agreement to buy or build the qualifying home for yourself or relative and intend to live in it within a year of either buying or building it.
You will be required to put the money back into your RRSP within 15 years. Your repayment begins the second year after your withdrawal (e.g., Withdrawal in 2023, repayment in 2025).
There are no maximum payback limits, so if you want to pay back just the minimum requirement or the entirety of the loan at one time, you have the flexibility to do so.
You must deposit the funds in your RRSP account at least 90 days prior to accessing it.
You can't use locked-in or group RRSPs for this program.
You must be a Canadian resident at the time the funds are withdrawn.
Update: There is now a First Home Savings Account available in Canada, which I break down here.
Excellent Resources:
https://www.wealthsimple.com/en-ca/learn/rsp-vs-rrsp#non_registered_accounts
https://www.canada.ca/en/financial-consumer-agency/services/financial-toolkit/taxes/taxes-3/3.html
