Since we are knee-deep in tax season, it seems the perfect time to continue to explore the topic of RRSPs. We know that saving for our retirement is important, especially now that we’re living longer, and contending with a high cost of living and dwindling Canada Pension Plan and Old Age Security coffers. When we’re younger and starting out with new jobs, homes and families however, saving for retirement seems nearly impossible, but it’s far more achievable than most folks think.
Although many people are already aware of the RRSP basics, such as how they can receive tax refunds, or how much they can contribute, there are also some very cool advantages and uses for RRSPs that can be quite life-changing. Learn about them here:
- RRSP Home Buyer’s Plan
If you’re hoping to break into the housing market and buy your first home, you’ll need to know about the RRSP Home Buyers’ Plan. This program allows you (and your spouse) to ‘borrow’ up to $25,000 from your RRSP to use towards the purchase of a house. You can essentially ‘dip into’ your RRSP without a penalty, but all money withdrawn must be paid back into it over the next 15 years. Although this means you won’t be earning interest on any withdrawn amounts, it’s balanced out by the fact that you now own a home that’s increasing in value over time.
Here’s another great benefit: Instead of putting aside money for your down payment into a standard savings account, you can invest the same amount of money into RRSPs each month, and still be able to withdraw it when it’s time to buy your home. Over the course of 5 years, you’ll come out ahead by having benefitted from thousands of dollars more in income tax returns!
- Lifelong Learning Plan
Investing in ourselves by obtaining a good education and learning a new skill or trade is always a good idea, but the high cost of education can be a deterrent. Are you aware of Canada’s Lifelong Learning Plan? This allows adults to withdraw up to $20,000 from their RRSPs to further their education; up to $10,000 in any one year, and you have four years to utilize this plan once it’s started. Just like the Home Buyer’s Plan, the money must be repaid into the RRSP, but it’s repaid over 10 years instead of 15. For anyone interested in going back to school but aren’t sure where the money will come from, the Lifelong Learning Plan is an excellent option.
- Spousal RRSPs & Income Splitting
Spousal RRSPs are very advantageous in situations where one person earns significantly more than another. It’s also beneficial when one spouse has stayed home with the children for any length of time or perhaps taken time off to go back to school or manage health issues. The higher-earning spouse can contribute to the lower earner’s RRSP, and claim the tax deduction at a higher rate than the lower income earner would have received. By splitting the income in this manner, it saves money because the higher income earner won’t be taxed as heavily. Not paying more in taxes is always a good thing.
Getting started on investing in RRSPs doesn’t have to be a big financial commitment, and don’t worry if you’ve missed out on this year’s RRSP deadlines; there’s never a deadline on planning for the future. Don’t forget that there are cool things your RRSP can do beyond retirement savings, such as finally getting that down payment on a home, or going back to school. What’s important is that you start now and do what you can. The more you start to earn over time, the more you can invest; it’s that simple. Be sure to connect with me, Darren Robinson to look at your RRSP and other investments options. Make an appointment by calling 705-315-0516 and let’s start planning for your future; it’s looking very bright.