Is a Registered Retirement Savings Plan for me?
Whether you’ve changed jobs in the past year, redeployed or you’re just starting to think about retirement planning, check in with your advisor. Your SISIP advisor can help keep your investments on track for future goals and ensure you’re investing in a tax-advantaged way.
Here are five things to consider.
1) Is an RRSP the best way to save for retirement?
An RRSP can be a great way to save for your retirement to ensure you have an income when you’re no longer working. Plus, putting money aside into an RRSP reduces the amount of tax you pay now, which means you’ll often qualify for an immediate income tax return.
Money you save in your RRSP grows and earns interest, but you don’t pay income tax on it until you withdrawal the money as income, ideally in retirement.
If you’re just starting out in your career, an RRSP gets you into the habit of saving each month. When it comes to any investments, time is your friend. The earlier you start, the less you need to put aside to meet your retirement goals. That’s the power of compound interest.
Did you know you can use your RRSP strategically to meet other financial goals?
Talk to your SISIP Advisor about how to use RRSP funds to put a down payment on your first house or to fund further education.
2) Do I have RRSP contribution room if I’m paying into a pension?
Even if you already pay into a work pension, you can still benefit from investing in an RRSP to top up your income when you retire. Your allowable contribution room will be affected by your pension adjustment, which is shown on your T4 slip.
If you’re in a high tax bracket, an RRSP will help you to reduce the amount of income tax you pay.
Keep in mind, you may also have carry-forward room from previous years, which will increase your allowable contribution limit.
3) Should I invest in an RRSP if my income is lower than usual this year?
The general rule with RRSPs is the higher your income, the more money you’ll get back on your income tax return when you make an RRSP contribution.
If you’ve already contributed to your RRSP this year but your income was reduced, don’t worry. You don’t have to claim the deduction on your 2022 tax return.
If you think you’ll make more money in the coming years, hold onto your Schedule 7 and claim your RRSP tax deduction next year.
4) Is a spousal RRSP a good idea if my spouse makes less money than me?
If there’s a significant difference in income between you and your spouse, the higher earner should make RRSP contributions to get the biggest income tax deduction.
You could choose to contribute to your own RRSP, as normal, but a Spousal RRSP may be a good option in this scenario.
When you retire, you want your household income split evenly between you and your partner to keep your income taxes as low as possible. A spousal RRSP gives the higher earner the benefit of the tax break now. But it helps you to balance future retirement income with your spouse. That means you’ll both save on taxes when you eventually draw from the fund.
Your SISIP Advisor can help you determine whether to invest in your RRSP, a spousal RRSP or both prior to the March 1st deadline.
5) Is an RRSP the only way to save for retirement? Can a TFSA be used for retirement savings?
RRSPs are a great way to save because you get a deduction on your income taxes and the money grows inside the fund tax deferred. Depending on your financial situation and investor profile, however, you could also look at using a Tax-free Savings Account (TFSA) to save for retirement. A TFSA isn’t tied to your salary or your employment status, so any Canadian adult can have one.
You don’t get a tax deduction on TFSA contributions, but you also don’t have to pay income tax when you eventually withdrawal from the account, which gives you a bit more flexibility around how and when to use the funds.
There is a maximum annual amount you can contribute to a TFSA each year, but you may also have carry-forward contribution room from previous years.
Consult with a SISIP Advisor to discover how a TFSA can help you meet your financial goals.
Book an appointment with your SISIP Advisor today to make an RRSP contribution.
Note: The RRSP contribution deadline for the 2022 tax year is March 1, 2023.
