Here are the most common questions and answers when it comes to registered retirement savings plans.
Q: What is the contribution limit?
A: Start with 18 per cent of your earned income to a maximum of $22,000 plus any carry forward of any unused contribution room (check with your income tax notice of assessment from last year) minus your pension adjustment from your employer plus your pension adjustment reversal.
Q: What is a pension adjustment reversal?
A: This is for investors who have left a registered pension plan or deferred profit sharing plan. It rebuilds contribution room if you no longer have a pension plan.
Q: Will I benefit from an RRSP loan?
A: Check with your tax advisor to see if it will make a measurable difference on your tax return. If you owe tax or want to generate a refund, borrowing in February and getting your tax return done in March may cost very little in loan costs compared to tax savings.
Q: How much can I over contribute to my RRSP?
A: Each Canadian can put in up to $2,000 extra without any penalties and use up the over contribution in future years. Over $2,000 and you can incur a penalty of one per cent of the extra contribution per month.
Q: Why would I contribute to a spousal RRSP if I can split pension income?
A: You want to have two equal amounts of income in retirement and your pensions may not be enough to have equal amounts. It will give you tax flexibility in retirement, meaning you can plan and adjust income generated from spousal RRSPs.
Q: How much can I contribute to a spousal RRSP?
A: Whether you contribute to your RRSP or a spousal plan, it is based on your contribution amount.
Q: When is the best time to invest in an RRSP?
A: As the great investor Sir john Templeton said “the best time to invest is when you have the money.” Consider dollar cost averaging for large lump sums for less risk or monthly contributions so you don’t have to come up with large lump sums each year. A good target is to save 10-15 per cent of your income annually for retirement.
Remember the deadline for RRSP contributions for your 2010 tax return is March 1, 2011.
Prepared by: Grant W. Hicks RDB, C.I.M., FCSI, Retirement Planning Specialist with Hicks Financial Inc. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. The views and opinions contained in this article are those of Grant W. Hicks. Comments or questions Grant can be reached at 954-0247 or 1-866-954-0247. E-mail: grant@ghicks.com. Web: www.ghicks.com.
