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Save today for tomorrow – while you lower your tax bill
Some years ago, the federal government decided to stimulate long-term savings and help Canadians think about a more financially secure retirement. They authorized Registered Retirement Savings Plans. Contributions to the plans, up to a specified limit, are made tax-deductible and the accumulation inside the plan is also tax-deferred*.
The amount you can deduct is subject to limits, based on last year's earned income and "pension adjustment" amount, and on deduction room carried forward from prior years. It is not necessary for you to keep track of or calculate this limit yourself. The CRA indicates your RRSP deduction limit on your Notice of Assessment sent to you for the previous taxation year. If you do not have your notice, you can find out your limit by accessing the CRA’s online services at www.cra-arc.gc.ca or by calling the CRA's T.I.P.S. automated phone service.
You have until March 1, 2010, to make a deductible contribution for 2009. Any portion of your deduction limit that you do not utilize is carried forward to the following year, enabling you to deduct larger contributions in future years. Your unused contributions can be carried forward indefinitely.
The maximum amount you can contribute to an RRSP is 18% of your earned income for the previous year, up to an annual limit. For 2009, the limit is $21,000, expected to increase to $22,000 for 2010. Note that your contribution limit will be lower if you are a member of a pension plan at work.
Any Canadian resident can hold an RRSP, even a student
Any Canadian resident under 69 with RRSP contribution room can hold and contribute to a Registered Retirement Savings Plan. It makes tremendous sense to start a plan early in life and contribute to it regularly. While you can take money out of an RRSP before age 69, when you do it’s taxed as income. That's why most people just let the accumulations compound, and when you do, the growth can be substantial.
A teenager with a part-time or summer job can open an RRSP and accumulate
for nearly 50 years. A young person just entering the work force can put 45 years worth of contributions into an RRSP. Someone who just begins to think of retirement and starts an RRSP
at 35 still has more than 30 years of accumulation tax-deferred* inside the plan.
Compounding pays and pays and pays
Be aware that the longer your money compounds, the greater the results. Compounding is the financial technique of leaving
the monies you earn in the plan to let it continue to earn you even more over time.
More than ever, people need to take charge of their own retirement planning. The Canada Pension Plan only offers so much. Benefits under company pension plans aren’t necessarily guaranteed any more. The best way to make sure your
retirement is a financially comfortable one is to put your own money away now for later.
Your RRSP is not a luxury; you should consider it a necessity.
For more information or advice on your RRSP, speak with your tax advisor, or contact us
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