Un­usual RRSP facts

The Guardian (Charlottetown) - - BUSINESS - This col­umn, writ­ten and pub­lished by In­vestors Group Fi­nan­cial Ser­vices Inc. and In­vestors Group Se­cu­ri­ties Inc., presents gen­eral in­for­ma­tion only and is not a so­lic­i­ta­tion to buy or sell any in­vest­ments. Con­tact your own ad­viser for spe­cific ad­vice ab

Here's what you prob­a­bly al­ready know about RRSPs: You reg­u­larly con­trib­ute to RRSP-el­i­gi­ble in­vest­ments, the con­tri­bu­tions are tax-de­ductible and the RRSP is tax-shel­tered un­til you make with­drawals in re­tire­ment and you enjoy the con­sid­er­able ben­e­fits of com­pound growth over the longer term of your time in the plan.

Here are a few RRSP facts you may not know — but know­ing them will help you get the most from your RRSP-el­i­gi­ble in­vest­ments:

The Home Buyer's Plan al­lows you to bor­row from in­vest­ments held in your RRSP for the pur­chase of your first home. You and your spouse can each bor­row up to $25,000 if you are con­sid­ered first-time home buy­ers and you must re­pay in­vest­ments held in your RRSP over the next 15 years or you'll pay tax on any amounts not re­paid.

The Life­long Learn­ing Plan al­lows you to use funds held within your RRSP to pay for train­ing or ed­u­ca­tion. If you qual­ify, you can with­draw up to $10,000 in a cal­en­dar year with the to­tal with­drawal amount capped at $20,000 over a max­i­mum of four con­sec­u­tive years. You must re­pay within 10 years to avoid tax penal­ties.

If you cease to be a res­i­dent of Canada you can still make con­tri­bu­tions to your RRSP-el­i­gi­ble in­vest­ments us­ing only Cana­dian-source earned in­come to cal­cu­late your con­tri­bu­tion limit. There is a 25 per cent with­hold­ing tax for pay­ments to non-res­i­dents from in­vest­ments held within a RRSP or RRIF but you can trans­fer qual­i­fy­ing lump-sum pen­sion ben­e­fits or re­tire­ment al­lowances di­rectly into your RRSP-el­i­gi­ble in­vest­ments with­out pay­ing the with­hold­ing tax.

You can also trans­fer funds be­tween in­vest­ments held within RRSPs with­out in­cur­ring a tax penalty.

In the year you turn 71 your RRSP will ma­ture and you will be re­quired to take the cash, pur­chase an an­nu­ity, or trans­fer the pro­ceeds into a RRIF. Once the as­sets are in the RRIF, you will be re­quired to with­draw an­nual amounts, start­ing the year af­ter you set up the RRIF and based on your age.

If you have a spouse or com­mon-law part­ner who is younger than you, you can choose to have the with­drawals based on your spouse/part­ner's age, mean­ing that the amount you will be re­quired to with­draw each year will be lower than if the with­drawals were based on your age. If you are not earn­ing much in­come, it might be more ad­van­ta­geous to start making with­drawals from your in­vest­ments held within a RRSP/RRIF prior to age 71 to smooth out your tax­able in­come in later years.

Us­ing the right RRSP/RRIF and over­all fi­nan­cial plan­ning strate­gies will help you re­al­ize all your re­tire­ment dreams. Talk to your pro­fes­sional ad­viser about the best strate­gies for your sit­u­a­tion.

Man­ag­ing Your Money

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