A R.R.S.P.  is a tax deductible, tax sheltered investment vehicle.   A properly funded retirement plan should include a combination of government funding and your own R.P.P. and/or R.R.S.P..

  A R.P.P.  may be  provided by your employer and contributions are made by the employee and employer on a regular pay basis.

  How much can I contribute to a R.R.S.P.?

  The amount you can contribute is 18% of your previous year's earned income less any pension adjustment you may have.  If you do not make the contribution in one year, the amount you can contribute is carried over and accumulates.  The government helps you keep track of the cumulative amount that you can contribute, and reports it on your notice of assessment each year.

  What is the year contribution deadline?

  Individuals who have an RRSP deduction limit for the  tax year have until  sixty days after year end, which is usually March 1, except for leap years when it is February 29, to make deductible contributions to their registered retirement savings plan (RRSP).

  Can I contribute for my spouse?

  You can contribute to a spousal plan, where the spouse will be the recipient of the funds when withdrawn after a specific time period.  You get the deduction for making the contribution.  The ideal situation is to have your retirement funds split equally between you and your spouse, so that taxes are minimized when you draw the funds out.

  What should we consider before tapping into our retirement savings?

  The Income Tax Act requires Canadians at age 69 to mature their registered retirement savings plans (RRSPs), including group RRSPs and locked-in RRSPs, whether they wish to or not.

Your options… and the consequences

• Cash in your RRSP savings.

• Convert your RRSP to a RRIF

• Convert your RRSP to an annuity

1. Cash in your RRSP savings.

• Cash means taxes. If you cash in your RRSP, and do not convert it to a further tax shelter, such as a registered retirement income fund (RRIF), your RRSP will be taxed as income in that year. The full value of the RRSP you withdraw is added to all your other income and you will end up paying more taxes than necessary.

• As well, when you withdraw funds from your RRSP, the financial institution is required to apply a withholding tax, which is a percentage of your RRSP.

Example:

• Withdraw less than $5,000 and there is a 10% withholding tax (outside Quebec).

• Withdraw 5,001 to 15,000 and there is a 20% withholding tax.

• Withdraw 15,001 plus and there is a 30% withholding tax.

2. Convert your RRSP to a RRIF:

• Converting your RRSP to a RRIF allows you to continue to defer taxes - but not entirely.

• Canada Customs and Revenue Agency requires you to withdraw at least a minimum amount from your RRIF each year based on your age, or the age of your spouse.

3. Convert your RRSP to an annuity:

• Converting your RRSP to an annuity gives you steady, predictable income for your entire lifetime. An annuity is essentially a contract with a financial institution that gives you guaranteed payments, either monthly, quarterly or yearly.

• The financial institution issuing the annuity is responsible for ensuring there is enough money in your plan to pay the regular income for as long as you live.