"Real Estate Bits - 2"

Just to make sure Canadians were saving enough money to keep them in good shape after retirement, the federal government introduced the Registered Retirement Savings Plan or RRSP in the late 1950s. The basic idea behind was - and still is - to incentivize Canadians to put money aside during their higher earning years so that they can pull it later when their income is lower and they'll pay less in income tax.

The net benefit to the country is that its senior citizens are in better financial shape and they will be paying tax at a lower rate because their income tends to much lower in retirement. To make all this happen, Ottawa offers a tax advantage up front to encourage all that savings and investment. The growth or income earned inside of an RRSP is still taxed, but at the time of withdrawal where presumably, Canadians withdrawing are at in a lower tax bracket.

Aside From The Obvious Benefit Of Saving For Your Retirement - RRSPs Also Have The Following Advantages:

1. Contributions are tax-deductible and may result in a tax refund.
2. Returns earned on RRSP investments accumulate tax-free inside the plan.
3. Investments are under your control.
4. You can contribute anytime throughout the year and up to 60 days after the end of the year.

More Questions & Answers On RRSPs:

Q. Who Can Contribute To A Yearly RRSP?

A. Canadian taxpayers with "earned income" in the previous tax year or those having unused contributions from previous years.

Q. How Much Can I Contribute Each Year?

A. In general, you can contribute either 18% of your previous year's "earned income" - subject to a dollar limit - plus any unused RRSP room carried over from previous years, less pension adjustments. The dollar limit that will reach $22,000 in 2010.

Q. How Many Years Can I Contribute To My RRSP?

A. Until December 31st of the year you turn 71.

Q. What Happens To My RRSP When I Turn 71?

A. You can cash in your RRSP. Or You can transfer the investments in your RRSP to a RIF or annuity from which you must begin drawing retirement income. Or a combination of either these options.

Q. I've Heard I Can Use My RRSP Investment As A Down Payment When I Buy My First Home. How Does That Work?

A. With the Home Buyer's Plan (HBP), you can, effective January 27, 2009, take up to $25,000 out of your RRSP to put towards the down payment on your first home and you won't be taxed on it. However, you do have to pay it back into your RRSP within 15 years. It's a great way to make the transition from renter to owner, especially when mortgage rates are working in your favour.

Q. What About Using My RRSP For Education Purposes. Can My RRSP Help Me Go Back To School?

A. Yes. With the Lifelong Learning Plan (LLP), you can withdraw up to $10,000 a year, or up to $20,000 in total each time you participate in the LLP to help pay for your education. All you have to do is repay at least 10% per year for up to ten years. Generally, your repayments start 5 years after your first withdrawal.

Q. What Is The Cut-Off Date For Contributions?

A. Whether you're making your contribution online, by phone or in person at your local bank branch, there is a hard cut-off for contributions at the end of February, although the date can extend into March depending on which day of week the month ends. There is an earlier deadline if you want to apply for a catch-up loan or line of credit.

As great a program as it is, Canadians aren’t taking advantage. We have been using up less than 10% of our contribution room as a nation, with the total value each totaling about $34-billion in 2007, the last year Statistics Canada has measured.

Regards,

Nino Pasquariello

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