Whether for retirement, education that new house or collectible widget, saving helps us achieve our financial goals. The question of “Where” we save is topic we will be addressing over the next few issues.
In the eyes of the Canada Revenue Agency (CRA) there are three vehicles that consumers can save in; Registered,
Non-Registered & Tax Free. All have a defined purpose and all should be considered by investors in creating a sound financial plan that will help you achieve whatever goals you have.
In this issue we wish to discuss the retirement savings vehicle, the RRSP. Registered Retirement Savings Plans were introduced in 1957, as a way to promote savings for retirement by Canadian employees. There are a variety of rules & restrictions stipulated in the Canadian Income Tax Act but broken down there are three basic rules that investors need to be aware of;
1. Each contributor has a maximum annual deposit allowance that she or he can put in their plan. This amount is stipulated annually by CRA.
2. When a deposit is made into your RRSP, the tax earned on every $1 you contribute is deferred until the money is withdrawn at retirement or other.
3. When a withdrawal is made, all proceeds are considered taxable and are added to your overall income for that given year.
One thing we try to get our clients to consider is “where the consequence lies”. Since RRSP savings are tax deferred, the plan is to put the money away while you are in your “higher income” earning years and utilize those savings in your “lower income” earning years. However, this isn’t always the case; especially if all you do is save inside an RRSP plan. Here, at the end of the day, all of your savings will be deemed income at withdrawal and will be 100% taxable in your marginal tax bracket. Therefore the consequence lies at retirement when you potentially could have the same or a higher marginal tax rate as you did in your working years. Over the next few issues these consequences will become clearer and we hope to shed some light on the “Where” when it comes to your savings and financial goals.
For a no obligation second opinion on your RRSP’s please give us a call, we’re here to help you. Alford & Associates is a family owned and operated financial practice in Brantford. For over 25 years we have helped our clients secure their financial goals. First and foremost we help you secure your greatest asset… Your Family.
ALFORD & ASSOCIATES INC
Insurance & Investment Advisors
254 Brant Ave., Brantford, ON N3T-3J5
Cell: (519) 758-4224