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Registered Retirement Savings Plan (RRSP)

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Are you looking forward to a w ell-deserved retirement as you count the years until you can finally spend your days as you please? A Registered Retirement Savings Plan (RRSP) is the ideal instrument to plan ahead and build your retirement nest egg.

Start saving now if you expect to maintain the same expectancy on the rise, public pension plans may come it, retirement could last as long as your working life!

WHAT IS AN RRSP ?

It’s a retirement plan registered with the Canada Revenue Agency. RRSPs help you build a nest egg during your most productive years so you can maintain your lifestyle once retired. Contributions to a plan are made on a voluntary and individual basis and are sheltered from tax. In fact, earnings (interests, dividends and capital gains) generated from these savings are non-taxable as long as they remain invested in an RRSP. In addition, contributions are deductible from your taxable income, up to a maximum allowable limit.

Your maximum RRSP contribution limit is stated on the notice of assessment sent by Canada Revenue Agency after you file your tax return. Note that, since 1991, unused RRSP contribution room can be deferred indefinitely and is included in the afforded limit.

MAXIMIZE RRSP BENEFITS

RRSPs are very attractive investments, especially if you manage to maximize its benefits.

  • Use RRSPs to reduce your taxable income on the long term. As a rule of thumb, retirement income is usually lower than working income and therefore subject to a lower tax bracket. By deferring withdrawal of your savings until retirement, when you earn less taxable income, you come out a winner twice over.
  • Contribute early to your RRSP. As the graph below shows, time is money when interests, dividends and capital gains grow tax-free.
  • Make the most of RRSP flexibility to catch up on unused contribution room. A few dollars today can put thousands of dollars in your pocket at retirement.
  • Take out a loan to contribute to your RRSP.  Tax savings can help you reimburse the loan, in whole or in part. On the long term, the return on investment will outclass by far any interest you may have paid on the loan.
  • Contribute to your spouse’s RRSP and ride on the advantages of splitting the family income in two once retired. Individual income, rather than a single family income, will be subject to a lower tax rate.
  • Think one step ahead and defer deductions. It’s an excellent strategy for people who expect to fall under a higher tax bracket in the future.
  • Use your RRSP as cash down on your first home with the Home Buyers’ Plan (HBP) that allows you to withdraw funds tax-free.
  • Finance your education with your RRSPs with the Lifelong Learning Plan (LLP).

 

RETURN ON INVESTMENT FROM $1,000 IN RRSP AND NON-RRSP INVESTMENTS*


*6% annual return, 40% marginal tax rate.

CHARACTERISTICS
Eligibility Canadian citizens aged 71 or less earning eligible income.
Investments GIC, Term Deposit, ActionGIC, mutual funds, etc.
Tax benefits
  • RRSP investments are tax deductible, up to the allowable limit.
  • Returns generated from RRSP investments grow tax-free.
Access to funds Withdrawal of RRSP funds is allowed, depending on the terms of a given investment. Withdrawn funds are taxable in the year they are received.
Note: The only way to withdraw tax-free funds from an RRSP is through the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP).
Minimum investment $500
Contribution limit The annual contribution limit corresponds to 18% of the income earned in the previous year, up to a maximum limit established by law for a given year ($26,230 in 2018), less any applicable pension adjustment amount which is based on savings accumulated in your employer’s pension fund.

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Unused RRSP contribution room If your annual contribution is under your afforded contribution limit, the difference will automatically be carried forward, without any limitation of time.
Excess contribution
  • Excess contributions are not tax deductible in the year in which they are declared. They are deferred and deductible to a year in which you contributed less than the allowable limit.
  • Excess contributions are subject to a lifetime cumulative limit of $2,000.
  • A 1% monthly penalty applies to any excess amount until withdrawn from the RRSP.
Contributing to your spouse’s RRSP
  • You may contribute to your spouse’s RRSP until he/she reaches the age of 711.
  • The total amount that a taxpayer can contribute to a spouse or common law partner’s RRSP cannot exceed the maximum deductible limit for the year, including contributions to his/her own RRSP.
Convert your RRSP Per law, you may contribute to your RRSP and maintain it until you turn 71, at which time you must proceed to its conversion. You have two options: a Registered Retirement Income Fund (RRIF) or annuities. You may also cash your investment.
Foreign content limit Since June 28, 2005, the investment cap on foreign content has been lifted for registered accounts.


Summary

This investment product is suited for you if:

  • You wish to plan your retirement in order to maintain a comfortable lifestyle and realize your projects;
  • You want to pay less income taxes via deductible RRSP contributions;
  • You want accumulated interests, dividends and capital gains to grow tax-free.


This investment product is not suited for you if:

  • You have already reached the maximum allowable contribution limit and no longer have contribution room.

 

 

 

Legal notice

Existing investment accounts are offered by Laurentian Bank of Canada (“Laurentian Bank”) or LBC Financial Services Inc. (“LBCFS”). LBCFS is a wholly-owned subsidiary of Laurentian Bank and a legal entity, distinct from Laurentian Bank, B2B Trustco, and any issuers or mutual fund companies whose products it distributes. All new investment account opening must be through LBCFS. A Laurentian Bank advisor is also a licensed LBCFS mutual fund representative. LBCFS’s liability is limited to the conduct of its representatives in the performance of their duties for LBCFS.

1. Canada Revenue Agency defines a “common law partner” as a person of the opposite or same sex, who is not your spouse with whom you live and have a relationship and to whom at least one of the following situations apply. He or she:

  • is the natural or adoptive parent (legal or in fact) of your child;
  • has been living and having a relationship with you for at least 12 continuous months; or
  • lived with you previously for at least 12 continuous months as your spouse or common-law partner.
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