RRSP's (Registered Retirement Savings Plans) The RRSP is one of Canada's best tax breaks. The sooner you start saving for your retirement, the better off you'll be.
Contributions can be made every year but December 31st of the year you turn 71 is the last day you can contribute .Whether you're just starting out in the work force, or well advanced in your retirement planning, it's in your best interest to stay up to date on one of Canada's best tax breaks—registered retirement savings plans or RRSPs. The deadline to make contributions eligible for deductions on your 2009 income tax is midnight March 1, 2010, but the sooner you make your contribution, the better. December 31 of the year you turn 71 is the last day you can contribute to your own RRSP.
When you're planning your RRSP contribution, be sure to find out your RRSP contribution limit. It's also a good idea to get a copy of the latest general income tax package and do a rough cut on your income taxes so you can see what the tax benefits of different levels of RRSP contributions will be.
If you would like to learn more about Registered Retirement Savings Plans or discuss how one might fit your financial plans, please contact me for a no-obligation consultation.
RIFF's (Registered Retirement Income Funds) A RRIF is an investment plan, established in accordance with Government of Canada requirements, into which you can transfer registered funds (e.g. from your RSP) without tax liability for the purpose of establishing an income stream for life.
Most people convert their RRSPs into either a RRIF or an annuity by December 31 of the year they turn 69. If you choose not to convert or collapse your RRSPs before the December 31 deadline you will be required to report the entire value of the RRSP as taxable income. This would be financially disastrous for most people as much of the RRSP will be taxed at top personal rates (usually in excess of 50%).
RRIFs are popular for many of the same reasons that have had people flocking to RRSPs for years. You can think of an RRIF as an RRSP that cannot be contributed to and one that requires you to make a withdrawal amount as long as a minimum withdrawal is made annually. Your withdrawals are taxed as regular income. A RRIF could be called a "reverse" RRSP. Here are the facts:
• You can exercise the same degree of control with the investments in a RRIF as with an RRSP. By using a self-directed RRIF, you can also switch between fixed income, stocks or mutual funds to adapt to changing market conditions. This gives you an edge on inflation and the best fighting chance against erosion of capital.
• Most fund companies can convert an RRSP to a RRIF with very little administrative red tape and some no longer charge fees for the conversion of the RRIF itself.
• You are only taxed on the RRIF income you withdraw. Amounts not withdrawn remain in the plan and are sheltered from tax.
• The minimum annual withdrawal is based on your age until you turn 71 and on a percentage of your RRIF value after that year (see table at the end).
• Any withdrawals above the minimum will be subject to withholding tax. You can delay the tax payable on the RRIF, therefore, by simply withdrawing the minimum amount each year and leaving the remainder to be invested.
• As with RRSPs, 30 per cent of the RRIF can be invested in foreign property.
If you would like to learn more about Registered Retirement Income Funds or discuss how one might fit your financial plans, please contact me for a no-obligation consultation.
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