1. Contributions are tax deductible

You claim your RRSP contribution as a deduction on your tax return. For example, if you’re in the top tax bracket in BC, every $1,000 you contribute reduces the tax you pay by approximately $477. And if your income is lower in a year, you can carry forward the deduction for your contribution to a future year when your income may be higher. That way, your tax savings are greater when you’re in a higher tax bracket.

2. Savings grow tax free

You won’t pay any tax on investment earnings as long as they stay in your RRSP. This tax-free compounding allows your savings to grow faster. 3. You can convert your RRSP to get regular payments when you retire You can transfer your RRSP savings tax-free into a RRIF or an annuity when you retire. You’ll pay tax on the regular payments you receive each year — but if you’re in a lower tax bracket in retirement, you’ll pay less tax.  Make sure your RRSP fits into your overall financial and retirement plan. Learn more about retirement planning

4. A spousal RRSP can reduce your combined tax burden

If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. Retirement income will then be split more equally between the 2 of you — which may reduce the total amount of tax you pay. Learn more about spousal RRSPs.

5. You can borrow from your RRSP to buy your first home or pay for your education

You can take out up to $25,000 for a down payment for your first home under the Home Buyers’ Plan (HBP). You can also take out up to $20,000 to pay education costs for you or your spouse under the Lifelong Learning Plan (LLP). You won’t pay any tax on these withdrawals as long as you pay the money back within the specified time periods.

Who is eligible to buy RRSPs?

Anyone who has earned income has a social insurance number and has filed a tax return can contribute to an RRSP up until December 31 of the year they turn 71. After this age, if you continue to have earned income, you can contribute to a Spousal RRSP up until December 31 of the year your spouse turns 71. This maximum age was increased from 69 to 71 in the 2007 Federal budget, giving people an additional two years to contribute. 

Earned income

For most people, earned income for RRSP purposes is the amount in box 14 of their T4 slips.  Earned income also includes self-employed net income, CPP/QPP disability payments and net rental income.  Income sources that do not qualify as earned income include investment income, pensions (including DPSP, RRIF, OAS, and CPP/QPP income), retiring allowances, death benefits, taxable capital gains and limited-partnership income. Revenue Canada’s Form T1023 (Calculation of Earned Income) outlines all sources of earned income.

British Colombia Personal Marginal Income Tax Rates

Understanding the Tables of Personal Income Tax Rates.

     Getting a social insurance number for your child

You’ll need the number to set up her RESP and to register for the government grant; they’ll need it later in life, too, when theyapplies for her first job and or a credit card. Check out the Service Canada website for how.

Your RESP options

There are three types of RESPs: individual, family and group. You can set up an individual plan to pay for one child’s education costs. If you have another child, you can set up a second individual plan or transfer the first one to a family plan, which you should be able to do without paying any penalties. Another option is to start with a family plan, which covers more than one child in the same family. And if one child goes to post-secondary school and the other doesn’t, the benefit of the entire account has been approved to either child, so you can allocate the entire benefit to the child who does go to university or college.

  RESP Calculator

(TFSA) Tax-Free Savings Account

Educational link on-line videos on related topics from some of our suppliers:

• Retirement planning

• Guaranteed Investment Funds

• How RRIF can convert your RRSP into retirement income

• Pension builder by Manulife

• What is an Annuity

• Wellness Quiz

• RRSP, DPSP, TFSA & YMPE limits

• RRSP Calculator

• Personal tax calculator

• How to Make a Will