You can reduce the amount of income tax you are required to pay by contributing to a Registered Retirement Savings Plan (RRSP.)
The clock is ticking. You have 60 days from the beginning of each year to make your contribution. This year’s deadline is March 1, 2017.
What is a Registered Retirement Savings Plan?
RRSP contributions are deducted from your earned income to reduce or defer any taxes payable.
There is a limit to the amount you can contribute based on your earned income in previous years. If you don’t use your full deduction limit, it accumulates and is carried forward until used. (Need help figuring this out? Let us look after your tax return for you: Tax Return Services)
What happens with the money you contribute?
The year you turn 71, all the RRSP contributions are transferred into your Registered Retirement Income Fund (RRIF), and you will receive income from the fund. Any excessive amounts are transferable into an annuity in the year of retirement.
RRSPs are not the same as a Registered Pension Plan.
What is a Registered Pension Plan?
A Registered Pension Plan is a pension plan set up by your company, which has a contribution limit of $3,500 yearly. You and your employer both contribute to increase the amount of your retirement pension.
Like, RRSPs, the contributions you make to your Registered Pension Plan help to reduce or defer your income taxes.
When your benefits increase, you can also make additional contributions for past service (between 1989-1996) in order to top up your pension.
Your total pension credits are called the Pension Adjustments. If you work for more than one employer during the year you will add the total reports by each employer on your T4 and T4A slips. The pension adjustment affects the total amount of contributions you can make to your self-directed registered pension for the following year.
Need help? Leave the calculations to us!
We can help determine the maximum amount of RRSP contributions you can make this year and help you avoid contribution penalties.
You will need to bring your prior year pay stubs and any investments recorded.
Keep in mind that your financial institutional will be very busy in the last weeks of February so get your RRSP slip early.