Note that not every kind of investment can be held in an RRSP. Non-qualified investments include: Investing in businesses in which you hold an interest of 10% or higher, precious metals that are not gold or silver, commodity futures, private holding companies or private foreign corporations, your own debt, and personal property.
What’s my RRSP contribution limit?
Every year, you can contribute up to 18% of your earned income from the previous tax year to your RRSP—up to a specified limit for the year. For 2023, the annual limit is $30,780. However, your individual contribution limit is also based on unused contribution room from previous tax years, as well as any contributions you have made to a company-sponsored pension plan. The easiest way to determine your RRSP contribution room is to use a calculator like the one below.
How can I use my RRSP savings without paying a penalty?
In addition to giving you a tax-deferred place to save towards your retirement goals without, an RRSP is a tool you can tap into to help with two major life expenses: buying your first home; and pursuing further education. In both cases you can withdraw a portion of your RRSP funds without having to pay tax or penalties, as long as you adhere to a specified repayment plan.
Home Buyers’ Plan (HBP)
The Home Buyers’ Plan (HBP) is a program that allows first-time home buyers to leverage their tax-deductible RRSP savings to use as a downpayment on their home. It essentially allows home buyers to borrow up to $35,000 per person from their RRSPs and then repay that money back into their RRSPs over a 15-year period. Any failure to meet the scheduled repayments in any given year will result in having the unpaid amount taxed at your top rate.
Lifelong Learning Plan (LLP)
The Lifelong Learning Plan (LLP) is a similar program that allows RRSP holders to withdraw money for the purpose of pursuing additional education. You can withdraw up to $10,000 per year and up to a total of $20,000 and are given 10 years to repay the full amount, in the same way HBP withdrawals are repaid. The LLP can be used to pay for your own education or your spouse’s, but not your children’s. Once it is repaid in full, you are free to use the program again.
Should I invest in an RRSP or TFSA?
Canadians can also choose to invest their savings in tax-free savings accounts (TFSAs). There are circumstances that would make a TFSA (which does not defer tax on contributions and instead offers tax-free growth and withdrawals at any time) a smarter choice. If you think you might need the money before your retirement, a TFSA will allow you to withdraw as much as you want, whenever you want. The flip-side of that equation, however, is that easier access to your money might derail your retirement planning in the long run.
Remember that the tax advantage of an RRSP relies on the assumption that you will be in a lower tax bracket when withdrawing the money in retirement than when you are contributing to it. So, if you earn less than $50,000, it makes more sense from a tax perspective to invest the money in a TFSA. If you earn more than $50,000 and are investing solely in your retirement (and perhaps saving for a home or planning more education), an RRSP makes more sense.
Or, if you have enough money to spread around, consider investing in both!
Sumber: www.moneysense.ca
