If you're a young investor, retirement may seem like it's a long way off, but we hope that this tutorial has encouraged you to think about planning ahead. After all, starting at a young age is one of the easiest ways to ensure that you will save enough money to retire comfortably. If your retirement days are more imminent, understanding how RRSPs work will help you decide how you can make the most of what you've saved so far. Here's a brief overview of what we covered in this tutorial:
- RRSPs benefit Canadians by reducing their taxes and allowing their savings to compound tax free.
- RRSPs are beneficial to the government because they reduce the financial burden of looking after retirees.
- Not every investment can be placed in an RRSP account - only certain investments qualify for tax advantages.
- Most banks, brokers, financial institutions, trust companies and insurance companies offer RRSP accounts to their customers.
- Managed RRSPs require few decisions on the part of the investor but often include more fees.
- Self-directed RRSP accounts allow investors to exert more control over the assets in their portfolios.
- Because of the tax benefits provided by RRSPs, the Canadian government has capped the amount of money that can be contributed.
- Personal contribution limits are based on the contributor's annual income and appear on his or her notice of assessment.
- The Canadian government lets everyone contribute $2,000 more than the individual lifetime contribution limit without penalty.
- RRSPs are changing with government policy. Recent changes have increased the amount that people can contribute on an annual basis.
- Though you can take money out of an RRSP at any time, the penalties are harsh and it is usually not in your best interest to do so.
- Any unused contributions are carried forward to your future deduction limit.
- If one spouse is in a different tax bracket than his or her partner, RRSP contributions can be used to lower the total amount of taxes a couple must pay by using income splitting.
- Taking money out of an RRSP account before retirement can be very expensive because withholding taxes often apply.
- Once you've taken money out of an RRSP through an early withdrawal, you'll never be able to recontribute that amount.
- The RRSP Home Buyer's Plan allows contributors to borrow RRSP funds to finance the purchase of a home.
- The Lifelong Learning Plan allows RRSP contributors to borrow from their plans to pay for education for themselves or their spouses.
- RRSP contributions are deducted from earned income before it is taxed, so the money that you put into an RRSP is not taxed until it is withdrawn.
- Registered, gradual withdrawals, such as an RRIFs, are the best way to minimize taxes once you retire.
- To maximize your contributions, start early, add to your account regularly, ensure that your money is making as much interest as possible and avoid early withdrawals.
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