What is an RRSP?
A Registered Retirement Savings Plan (RRSP) is an investment account designed primarily for saving toward your retirement years. As a retirement savings vehicle, regulated by the Canadian government, RRSPs have special tax benefits. Your annual RRSP contribution can greatly reduce the amount of income tax you pay in that year, and the money you put away can have years of tax-deferred growth potential. You only pay tax on the amounts you withdraw. RRSPs are available through chartered banks, trust companies and other financial institutions.
Contributions to an RRSP can only be made by individuals with “earned income” taxable in Canada, which includes salaries, self-employment income, maintenance and alimony payments, and net rental income (but does not include income from pensions or investments). Certain other types of income may be eligible — consult a tax advisor or Canada Revenue Agency (CRA).
CRA issues statements to individual taxpayers with their “Notice of Assessment” informing them of their RRSP contribution limit for the following year.
How much can I contribute?
The Notice of Assessment that you received from Canada Revenue Agency (CRA) after filing last year’s tax return, stated your maximum contribution for the current year.
In general, you can contribute either 18% of your previous year’s “earned income” – subject to a dollar limit – plus any unused RSP room carried over from previous years, less pension adjustments, for the previous tax year.
If you have not received this notice or need to double check the amount, simply call CRA. For service in English, call 1-800-959-8281. For French, call 1-800-959-7383.
If you are/were self-employed, or employed and not a member of an employer-funded Registered Pension Plan (RPP) or Deferred Profit-Sharing Plan (DPSP) –
For the 2010 tax year, your current year’s RSP contribution limit is 18% of your previous year’s “Earned Income” to a maximum of $22,000, plus any unused contribution room carried forward from previous years.
If you are/were a member of an employer-funded RPP or DPSP –
For the 2010 tax year, your current year’s RSP contribution limit is 18% of your previous year’s earned income to a maximum of $22,000 minus the Pension Adjustment reported by your employer (found in box 52 of your previous year’s T4 slip), plus any Pension Adjustment Reversal reported by your employer on Form T10, and any unused contribution room carried forward from previous years. This information is intended as a guideline only. Please contact CRA for full details and calculations.
What if I contribute more than my limit?
You can overcontribute a maximum of $2,000 during your lifetime, and deduct the over-contribution in future years – provided you have contribution room against which the deductions can be applied.
If you exceed the $2,000 overcontribution amount, a penalty tax of 1% per month will be levied on the excess amount.
What is RRSP carry-forward?
If you don’t contribute the maximum allowable to your RRSP in any year, you can carry the unused portion forward indefinitely. Any amounts “carried forward” are reflected in the statement provided by Canada Revenue Agency with your “Notice of Assessment”.
How do I transfer in my RRSP from another financial institution to my Leede Financial RRSP account?
If you would like to transfer an RRSP that you hold at another financial institution, please complete the Transfer Authorization for Registered Investments in our Forms and Documents section and have it mailed back to us with a current copy of your statement. We will then initiate the transfer for you.
What is a spousal RRSP?
The more taxable income you have, the higher your tax bracket. You should, therefore, consider allocating future taxable income as evenly as possible between you and your spouse or common- law partner. This is commonly known as “income-splitting”.
You are entitled to put all or part of any allowable RRSP contribution into an RRSP in the name of your spouse or common-law partner. When you both withdraw your RRSP savings during retirement, the combined income tax you pay as a couple may be lower than what you would pay if all your savings were in a single RRSP.
As the contributor to a spousal RRSP, you benefit from the tax deduction while building a retirement nest egg for your spouse or partner. Amounts withdrawn from a spousal RRSP will be considered part of the taxable income of your spouse or partner, to the extent that you have not contributed any amount to a spousal plan in the current year or the two preceding years. A spousal RRSP is most beneficial in a situation where the spouse would otherwise have little retirement income while the contributor would have a significant amount of income.
I have a spousal RRSP account. Who is entitled to the contribution receipt- me or my spouse?
The contributing spouse is the one who receives the contribution receipt. The account holder is entitled to the funds and has authority on the account. The Canada Revenue Agency puts limits on how much can be contributed to a spousal RRSP and determines who has the tax liability if money is withdrawn from a spousal RRSP. More details are available at the CRA website.
When is the deadline to do an RRSP contribution for the current tax year?
March 1st is the annual RRSP contribution deadline (February 29th on leap years). During the first 60 days of the year, contributors have the option of claiming the contribution receipt for the previous year or for the current year.
How can I make a contribution to my RRSP?
There are several ways that a contribution can be made to an RRSP:
- Cheque deposit (please make cheques payable to Leede Financial Market)
- Bill payment through your financial institution’s telephone or internet banking service
- Pre-authorized contribution – You can sign up by filling out the PAC form in the Forms and Documents section
- Transfer of cash from your existing non-registered account – Contact your Investment Advisor to give instructions
- You can also do a contribution in-kind, which is a transfer of securities from your existing non-registered account at current market value.
I heard that the Canada Revenue Agency has removed the foreign content rules for RRSP accounts. Is this true?
Yes, it is. The Canada Revenue Agency has removed the foreign content limits, so there are no longer any restrictions on the amount of foreign content you can hold in your RRSP.
Can I trade options within my RRSP?
Yes, there are some types of option trades which can be transacted in plan accounts: The purchase of Calls & Puts as an opening transaction, the selling of Calls & Puts as a closing transaction and the selling of covered Calls. Various levels of options approval is necessary in order to be able to trade options in RRSP accounts.
Please note: Option spreads, straddles, and uncovered/naked writing are not an eligible investments for RRSP.
Do you offer RRSP accounts denominated in US dollars?
Yes, Leede Financial Markets is pleased to offer RRSP accounts in US dollars. Now you can trade U.S. equities and options without having to worry about foreign exchange conversions.
I would like to withdrawal funds from my RRSP. How can this be done?
Although an RRSP is more effective as a long-term investment, you may withdraw all or part of it at any time. RRSP withdrawals are subject to tax and the terms of the investment you choose. Withholding taxes apply on funds withdrawn from an RRSP except when funds are transferred from one RRSP to another, or when funds are transferred to a retirement income option such as a Registered Retirement Income Fund (RRIF).
* Please note that withdrawal restrictions apply to locked-in RRSP plans.
Funds can be taken out of your RRSP by deregistering them from the plan. To deregister funds you will need to complete the RRSP deregistration form. Please ensure that the funds are available as cash, before submitting the deregistration request. If you do not have cash available, we will not be able to process your request. You will need to decide which security to sell in order for the cash to be available for deregistration.
There are tax implications when you deregister funds from an RRSP. The current withholding rates are listed below, but please consult your tax specialist regarding your personal tax consequences.
Withholding Tax Rates: (for all Provinces other than Quebec)
$5,000 or less – 10%
$5,000.01 – $15,000 – 20%
Over $15,000 – 30%
Withholding Tax Rates: (Quebec Only)
$5,000 or less 21%
$5,000.01 – $15,000 26%
Over $15,000 31%
Withholding Tax Rates: (US Residents) 25%
I was told that I could borrow money from my RRSP via the Home Buyers Plan tax free to purchase a house. How does this work?
The Home Buyers Plan is a program that allows you to withdraw up to $25,000 from your RRSP to buy or build a qualifying home. For details on what constitutes a qualifying home, please visit the Canada Revenue Agency’s Home Buyers Plan information page.
If you qualify, you will need to complete form T1036 and forward to your Investment Advisor.
What is the Lifelong Learning Plan, and how do I participate?
The Lifelong Learning Plan (LLP) allows you to withdraw up to $10,000 in a calendar year from your RRSP to finance full-time training or education for you, or your spouse, or common-law partner.
In order to participate in this program you will need to complete form RC96 and mail it to our office, along with a letter of direction telling us where you wish the funds deposited. For more information, please visit the Canada Revenue Agencys Lifelong Learning Plan page.
What happens to my RRSP when it’s time to retire?
By law, your RRSPs must be converted to a form of retirement income by the end of the calendar year in which you turn 71. The most popular choice for Canadians is to convert their RRSPs to a Retirement Income Fund (RIF). With a RRIF, your investments can continue to grow on a tax-deferred basis while you withdraw the income you need.
What happens to my RRSP when I die?
The value of your RRSP is paid to the beneficiary you have designated. If you have not designated a beneficiary, it is paid to your estate. In certain cases, including if your beneficiary is your surviving spouse or common-law partner, your RRSP may be transferred to them on a tax-deferred basis. You should consult your District Taxation Office or legal and tax advisors for more specific information.
If you have further questions with regards to RRSPs, please contact your Investment Advisor.