The Purpose of Your RRSP

You are probably hearing a lot these days about the options for your Registered Retirement Savings Plan, or RRSP. The reason is that the deadline for 2013 eligible contributions is fast approaching.

Thanks to various government programs, the RRSP has become more than just a plan to save for your retirement. In addition to retirement savings, your RRSP allows you to reduce your income taxes owing, assist toward the purchase of a home, or help finance post-secondary education.

Tax benefits are widely considered to be the most important reason for contributing to your RRSP. Contributions are tax deductible and grow tax free while in the RRSP. Every dollar contributed to your RRSP, up to your RRSP limit, is deducted from your 2013 taxable income. This means that you will either receive a tax refund or reduce the amount of tax you have to pay when you complete your 2013 income tax return.

Some people will contribute to their RRSP with the ultimate goal of purchasing a home by participating in the Home Buyers Plan (HBP). An RRSP holder can borrow up to $25,000 from their RRSP and use the money toward the purchase of a residence. This loan must be repaid into the RRSP within fifteen years from the second year of the withdrawal. The HBP can be used more than once in a lifetime, as long as the borrower has not owned a residence in the previous five years and has no outstanding balance owing on a previous HBP loan.

Much like the HBP, the Life-Long Learning Plan (LLP) allows for a tax free loan to be made on an RRSP. This program allows individuals to use the loan proceeds to enroll in a post-secondary education program. The RRSP holder can withdraw up to $10,000 per year with a lifetime maximum of $20,000. The first repayment under the LLP must be made at the earliest of these two dates: 60 days after the fifth year of the first withdrawal, or the second year after the last year the student was enrolled in full-time studies.

Let’s not forget about the main purpose for introducing the RRSP back in 1957: to provide a person with a source of retirement income after they cease to work. The idea is to contribute over your working lifetime and allow the money to grow tax-free until you begin to make withdrawals to fund your retirement.

Whatever your reason for contributing, you have very limited time to make and apply these contributions toward your 2013 taxes. March 3rd, 2014 is the deadline for making your RRSP contribution and receiving a deduction on your 2013 tax return.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail Mutual Funds provided through FundEX Investments Inc.

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