Registered Retirement Savings Plans
The most common misconception about an RRSP is that some people assume their money is being invested in the stock market. This is not true. What is true is you have choices!
It should be kept in mind that the main purpose of an RRSP is to reduce your income tax as much as possible. If you have, through other means, reduced all of your income tax (and that of your spouse) to ZERO, then use your surplus funds for other things such as paying off debt.
Now your choices. There are only two types: Equity Market (which is the stock market) or a Savings Account ( which is the Non-Stock Market type). Both types have the same effect on your income taxes and both are treated the same at age 71 when they must be converted to a RRIF (see RRIF for details) or cashed in. Both have sheltered interest or income revenue, which means you don't pay tax on the income until withdrawn. The Cumberland Credit Union does not offer self directed RRSP's yet, but does offer a RRSP Equity Fund. Self Directed Plans permit you to pick and choose what you invest in from a list of investments set by Revenue Canada. Many of these investments are related to the Equity Markets. The Savings Account types can be either a Daily Interest type that permit daily contributions ( or withdrawals) or a Term Deposit type. The interest rates are usually lower for Daily Interest than the Term Deposit Types. Term Deposit RRSPs offer higher interest rates, and are usually locked-in for a set length of time.
Other points: You must have employment income to contribute. There is an annual limit to what you can contribute. Unused contribution limits can accumulate over time. Revenue Canada reports what your current limits will be for the current tax year when you file your annual return. You can contribute to your spouse's RRSP ( Spousal Contribution) and obtain the tax deduction while your spouse retains ownership of the RRSP. This is effective Tax Planning if your spouse will not have a pension plan at retirement and you will. At retirement, your pension income goes on your tax return, and the RRSP withdrawls go on your the spousal return. This is commonly referred to as "Income Splitting". Upon death your plan can be transferred to your spouse's plan without attracting income tax. If your spouse is over the age of 71, your plan can be rolled over to their RRIF. For more information contact the branch or go online at:
