RRSPs – Still Canadians’ Best Opportunity for Retirement Savings
RRSPs offer Canadians an opportunity to save for their retirement with tax deductible contributions made from taxable income. Amounts earned in the RRSP are exempt from tax for the time the funds remain inside the plan. The key to successfully building your RRSP is to contribute early and regularly which enhances the effect of tax free compounding over time.
The year you turn 71, you are required to convert your RRSP to a Registered Retirement Income Fund (RRIF) or purchase an annuity. These options can be exercised earlier than age 71 at your discretion. When payments are made from a RRIF or annuity, tax will be paid on those funds.
I can assist you with your savings and retirement planning, including: setting up your RRSPs; converting your RRSPs to RRIFs; and purchasing annuities through our insurance subsidiary, PI Financial Services Corp.
At PI, we offer one of the lowest cost RRSPs on the street and with our competitive commissions and fee schedules we are an attractive option. Whether you want to invest in stocks, mutual funds, or guaranteed investments such as bonds, or GICs, I am able to assist you.
- The RRSP contribution deadline for the 2012 tax year is midnight of March 1, 2013.
- The RRSP contribution limit for 2012 is 18% of previous year’s earned income up to a maximum of $22,970.
- Your RRSP limit including any unused contribution room from previous years is shown on your tax assessment from CCRA.
- The RRSP contribution limit for 2013 is $23,820. Contributions made in the first 60 days of the calendar year can be used for either the 2012 or 2013 tax year.
TSFA’s – Another Tax Free Savings Vehicle
In 2009, CCRA provided Canadians with another tax free savings vehicle with the creation of the Tax Free Savings Account (TSFA). Canadian residents who are 18 years of age or older with a valid social insurance number can set aside money to grow tax-fee during their lifetime.
Unlike an RRSP, contributions made to a TSFA are not deductible for income tax purposes and funds withdrawn are tax free. Similar to RRSPs, investment income and capital gains within the TSFA are exempt from tax, thus providing the same tax free compounding effect.
For 2009 – 2012, the annual TSFA contribution limit was $5,000 per year. For 2013, the limit has been increased to $5,500 to account for inflation. As such, an investor who was at least 18 years of age in 2009, who has never contributed to a TSFA has $25,500 in unused contribution room. Unlike RRSPs, the annual contribution room is fixed by CCRA and not based on an individual’s income.
Funds can be withdrawn from a TSFA at any time, and re-contributed in subsequent years - subject to a few conditions. Each dollar in withdrawn funds from a TSFA, creates an equal amount of contribution room going forward.
- For 2009 – 2012 the TSFA contribution limit is $5,000 / year.
- For 2013, the TSFA contribution limit has been increased to $5,500.
- Funds can be contributed or withdrawn at any time of the year.
- PI offers a Self-Directed TSFA with no annual administration fee.
For more information regarding RRSPs and TSFAs, contact me today.