Vol. 12, #17.1 – Feb. 26, 2020– ALLAN GOLD’S BLOG
By Allan Gold, lawyer, lecturer and author.
WONDERING ABOUT RRSP? HURRY- LAST MINUTE ALERT!!
GOLD’S TOP-10 WONDERFUL QUESTIONS
That Canadians really wonder about! (Part #1)
While most people know about RRSPs, many wonder about certain issues. Indeed, they have questions, but fearing that such might be dumb, they don’t ask them. Seeing that we’re nearing the end of RRSP season and people are rushing to get in before the deadline, I thought it appropriate to provide certain information you always wanted to know about RRSP, but perhaps, were afraid to ask.
Just so you know, as per a Chinese proverb “He who asks a question remains a fool for five minutes. He who does not ask remains a fool forever.” But as per A. Gold, “After getting an answer to one of these RRSP queries, you’ll probably save some money!”
B. GOLD’S TOP-10 WONDERFUL QUESTIONS
“The envelope please,” I said. Now on being handed the envelope, I can announce my Top -10 Questions on RRSP that Canadians wonder about. Without further ado, let’s commence the count down.
1st Runner –up (#11 Honourable Mention) – 2020 Deadline.
Q. What is the deadline to make an RRSP contribution this year?
A. This is a simple one to answer. The deadline for contributing to an RRSP for the 2019 tax year is March 2, 2020. Hurry up!
#10 RRSP Definition.
Q. What is an RRSP?
A. That’s a great question. Now why didn’t I think of that? A Registered Retirement Savings Plan (RRSP), or Retirement Savings Plan (RSP), is a type of financial account to hold savings and investment assets. More precisely, it’s a Canadian retirement savings and investing vehicle for employees and the self-employed. More to the point, there are tax advantages to depositing funds into a registered account as opposed to making investments outside of such. You see, this is a tax-preferred account. In essence, pre-tax money is placed into an RRSP and grows tax-free until withdrawal, at which time it is taxed at the marginal rate.
#9 -RRSP Benefits.
Q. What are the benefits of RRSP?
A. There are several. First, contributions are tax deductible. Second, your savings grow tax free. Third, when you retire and you need regular income payments, there are RRSP conversion options. One example is the Retirement Income Fund (RIF).
#8- RRSP Withdrawals.
Q. Can we or should we withdraw RRSP funds to pay debts or take a vacation or some such?
A. Yes, you can, but it’s not a good idea to do so. First, you’re depleting the savings that will constitute the capital amassed by you in order to provide retirement income that you’ll need when you become a retiree. Second, you’re in for a big surprise. Although you may withdraw a certain sum, you’ll only get a fraction of that amount. This is because any withdrawals from your RRSP are immediately subject to withholding tax. If you withdraw up to $5,000, the withholding tax rate is 10%; if you withdraw between $5,001 and $15,000, the withholding tax rate is 20%; and if you withdraw more than $15,000, the withholding tax rate rises to 30%. And if that’s not bad enough, it’s critical that you realize that it’s possible that the taxes held back may not be sufficient to cover your full tax bill, which means you could wind up paying even more when you file your tax return. However, there are a few exceptions. You can borrow from your RRSP to buy your first home or pay for your education. Indeed, there is a Home Buyers’ Plan (HBP), a federal program that allows first-time home buyers to withdraw up to $25,000+- from their RRSPs to purchase or build a principal residence. However, know that you must repay the money to your RRSP over a period of no more than 15 years.
#7 – RRSP Loss.
Q. What happens if your RRSP account loses value? More particularly, can you deduct the loss from income?
A. No, the money you invest in a Registered Retirement Savings Plan (RRSP) grows tax deferred until you withdraw it. In theory, assuming that you don’t roll them over to a RIF, etc., that’s the point in time when taxes will be due and exigible. However, any losses on the investment within the RRSP before the date of withdrawal are not viewed by the Canada Revenue Agency (CRA) as a capital loss against your RRSP and as a result the loss isn’t deductible.
#6 -Spousal RRSP.
Q. Can a husband or wife make a RRSP contribution to the RRSP account of a spouse?
A. Yes, you can. If you wonder why you would do this, my response is that a spousal RRSP can reduce your combined tax burden. If you ask how you can make it happen, my reply is that you need to open a spousal RRSP and once you do so, you can make a contribution on behalf of your under-71 spouse and claim the tax deduction on that money. And here’s a great fun fact. Likewise, if you die, your estate can contribute that money to the account in order to provide some inheritance tax free.
C. CLOSING: Are we there yet? No I have five more questions and each one is a real doozy! I assure you that you really want to know the answers to these queries.
I repeat the questions put at the outset. Retirement planning? Contribute to an RRSP? Concerned about senior living? Thinking about Seniors and money? If you answered yes to any of them, this blog post is for you. And if you’ve been asking yourself, “What is an RRSP?”, “What are the benefits of RRSP?”, “Do Canadians wonder how RRSPS work?”, “Which is better RRSP or TFSA?”, then this blog is really for you!
Here’s my take-away. Proper preparation usually leads to better outcomes. This applies to retirement as well. So I encourage you to prepare today for your retirement tomorrow. It’s easy. Make a contribution this year. You’ll be proud of yourself today when you do it. And tomorrow, your future retiree self will be even happier that you did. So hold your nose and just get it done!
P.S. Here’s a cheer for you.. “Give me an R! Give me another R! Give me an S! Give me a P! Why? Because they’re Rrrrrrrsp!” No really why? Because as Pony the Badger would say, “Saving for retirement is grrrrrreat!”
D. PREVIEW OF NEXT IN THE ELDER LAW BLOG SERIES.
I believe that with this blog series, I may have started you along the way to being more aware of elder law. I will continue on with the subject of retirement planning, more particularly, RRSP and will continue the countdown to the #1 MOST WONDERFUL QUESTION of Canadians regarding RRSP. Interested? Want to get more information about the current topic, retirement planning, or other areas of elder law written by an “avocat,” one of the family law lawyers, family lawyers Montreal, practicing in the elder law field? See you next time. It won’t take too much time. Remember my byline – it’s “Gold’s Legal Minute*GLM*!” And please don’t forget to join my professional community by entering your e-mail at the prompt.*
E. NOTICE – CAUTION –DISCLAIMER.
The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of, or a substitution for, legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.
* ©/TM 2020, 2019, 2015-2018, Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED
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