Whether you’re in the beginning stages of exploring the job market, raising a family, already established in your career; no matter what your life stage is a savings plan to secure your future is a great decision. One of the ways in which Westoba Credit Union’s experienced and can help is by working with you to establish if an RRSP (Registered Retirement Savings Plan) makes sense for your financial plan. Below, we put together some points to help you make some informed steps towards your financial goals.
What is an RRSP?
Even if retirement is a distant concept, preparing for the future just makes good sense. An RRSP is helpful when it comes to saving money for your retirement. The Canadian government created them in order to encourage people to save for their futures by providing tax breaks on RRSP contributions. This means that any contributions you make to your RRSP are only taxed when you withdraw from it, not when you pay into it, thus helping to reduce your annual tax bill.
Put your money to work for you
How does an RRSP differ from a TFSA?
You might be thinking, “That sounds like a Tax-Free Savings Account, what’s the difference?” A TFSA is another great savings option, especially since there are no tax implications on redemptions However, they’re designed for those of us who have more immediate savings goals, like purchasing a car or rainy-day funds.
Contributions made to your TFSA are not tax-deductible like they are for your RRSP, and the contribution limit is much lower than that of an RRSP (a percentage of your income). You can check those contributions limits on the Canada Revenue Agency website. There are benefits to both options and can help you make the right decision based on your goals.
What are the benefits of an RRSP?
The best part about working with a Westoba expert on your RRSP investments is to plan your contributions so that you’re getting the most out of your tax return. Not only are you saving for your future, but you’re ensuring that your annual income works the hardest for you!
The biggest benefit of an RRSP is the ability to reduce your annual taxable income through contributions. That means that during your highest income-earning years your tax bill will be reduced on account of those contributions. It also means that when you withdraw from your RRSP later in life, during what is likely to be your lowest income years, the tax you pay on that income will also be lower.
You can also use RRSPs to save for education or buy a home with programs available through the federal government. Additionally, the income you earn within our RSP grows tax-sheltered.
How do I contribute to an RRSP?
Setting up an RRSP is relatively simple – yo can either get the help of a financial advisor or apply online. The Canada Revenue Agency has established rules around how much you can contribute to your RRSP: 18% of your annual income or, for 2020, $27,230, whichever amount is smaller (that rate changes annually). You won’t be taxed on that contribution until you start to withdraw it later on during retirement.
With specific RRSPs that aren’t locked into a term, you may make withdrawals from your RRSP whenever you’d like; however, keep in mind that if you make them before you turn 71, they will be taxed. You can also transfer funds from your RRSP to a TFSA, but you will be subject to tax and must be sure you aren’t exceeding the contribution limit for your TFSA before you transfer those funds. And while you can’t transfer funds from your RRSP to a spouse or child, you can set up a joint RRSP with your spouse.
If you’re looking for the best RRSP rate for variable and locked-in terms, Westoba’s online division, MAXA Financial, is a Manitoba-based credit union that offers an excellent option, along with additional registered and non-registered account options.
What happens when I retire?
Once you retire, your RRSP turns into a Registered Retirement Income Fund (RRIF) that you can then withdraw from. You will be taxed on those withdrawals as though they are income, however, don’t forget that your tax rate at this point will be lower than before retirement. Depending on how long and how much you’ve contributed to your RRSP, you could see up to an 8% rate of return. Your financial planner can help ensure that you set yourself up for a healthy retirement.
Get closer to that sunny retirement by starting to save today!
When should I start an RRSP?
Generally speaking, as long as you’re working and over the age of 18, you can set up an RRSP. Speak to a financial advisor, they can help you determine where your income is best allocated and develop an effective plan that takes your money the furthest.
Where do I go from here?
If you’re interested in learning more about RRSPs, get in touch with Westoba’s Financial Solutions team! Our financial advisors are experienced, knowledgeable, and excited to work with you to reach your goals. When you book an appointment with a member of our team, you will receive one-on-one guidance to develop a plan that is personalized and practical, keeping you in control of your money and focused on your dreams.
Call 1-877-WESTOBA to make an appointment with one of our financial advisors or book a chat today!