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Part of planning for the future is making sure you and your family will be financially secure. When watching the down turn in the economic market these past months, it is understandable that many people become concerned about their financial future, especially their investments for their retirement. One way a person can ensure stability for their family is investing in Registered Retirement Savings Plans (RRSP’s).

An RRSP is a Canadian retirement plan that one acquires and they, or their spouse, makes financial contributions. Deductible RRSP contributions can be used to reduce your income taxes. The amount of money you contribute is normally exempt from tax, but one will usually have to pay a tax if they make a withdrawal or receive payments from the plan. It allows people to build a considerable amount of money for retirement or any other financial reason.

A registered retirement savings plan (RRSP) is a flexible savings plan that can be acquired by anyone who is employed, self employed, and under the age of 71. The RRSP is registered with the Canadian federal government which permits a person to save for the future. An RRSP allows you to deduct the amount of money that you paid into the plan from your taxable income. You can even acquire an income tax deferral on your investment income. This means that you do not pay taxes on income earned in an RRSP until you withdraw the funds. The best part of an RRSP is that the amount of money you pay into the plan is protected against any fluctuations in the market. As well, if you have any creditors, they cannot get access to your RRSP.

People will normally acquire their RRSP through a bank or other lending institution such as a Credit Union. In many cases, it generally works by the following: if you contribute $5,000, the amount that is taxed will be reduced by $5, 000. As you can see, you can drastically reduce the amount of taxes you have to pay. You should check with your financial institution to find out how their RRSP plans work as certain conditions may apply.

Depending on the bank, there are usually a number of RRSP options which offer a guarantee of your capital with continuing growth potential. RRSP’s can contain a variety of investments including: RRSP savings deposits, mutual funds, guaranteed investment certificates (GICs), treasury bills, and bonds.

One of the best reasons for enrolling in an RRSP plan is that it will give you another source of retirement income. As your RRSP grows over the years, you will be able to take advantage of the tax benefits. When you retire, you will have an extra income source to ensure that you and your family will maintain a comfortable living.

The recent volatility of the markets should cause those with investments to consider investing in safe and long term investments. Enrolling in an RRSP is a safe investment that will provide financial security for you and your family.

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RRSP FAQ:

Question: I got an audited for a “cashed in” rrsp that I didn’t even have!
I received a letter that came from the government saying I owed $600 for an rrsp that I supposedly cashed in during 2008. They say that I owe this money based on the 2009 tax year. I haven’t owned an rrsp for over 5 years nor have I cashed anything in since that time. I don’t own rrsps currently. My old rrsp didn’t get anywhere close to the tune of $2700 as the statement said. Has anyone else had this happen? Is this a scam? I have talked to my bank and they have no record of this. Because it is the government I feel as if there is nothing I can do and I can’t afford to pay this! What can I do?

Answer: First, you file a notice of objection, explain that as far as you know, you did not cash in an RRSP, and any T4RSP issued to you must have been in error.

It sounds like either you cashed in an RRSP and don’t remember it, or a T4RSP was issued with your social insurance number in error, or something else weird happened.

You should also ask (separately) for a copy of the slip. It will say who issued it. You can follow up with the issuer to determine if it was issued in error. If they did pay the money to you, they should be able to show proof of the payment. If they didn’t pay it to you, then they’ll have to deal with that. To ask for a copy of the information slip phone the general inquiries number and tell them what you want.

Question: What line on your income taxes do you enter tfsa’s under?
I have Quicktax (or turbotax) software just the standard edition. I looked it up on there and it gives me info on it but I cannot seem to find where (or how) to enter it. Is it considered an rrsp? I already have one of those so I would need to enter it on a different line. I’ve done my taxes this way for two years this is just the first year I am claiming a tfsa.

Answer: Contributions to a TFSA don’t have to be reported on your tax return. There is no deduction for the contributions (as you would get from an RRSP contribution), but withdrawals aren’t taxed (RRSP withdrawals are taxed).

The income earned in a TFSA just goes back into the account and isn’t taxable.

Question: What happens to the investment for which there is no will?
My wife has separate bank account and RRSP investments. Neither me nor my wife has a will. In case of a death of either of us, who will inherit the property of dead person without will?

Answer: If no will, the investments will go to estate, and the provincial probate court will decide how the funds will be distributed, after all necessary expenses, e.g., funeral, and taxes (deemed disposition of investment properties and gains and taxes) have been paid by the estate. In general, the residual funds will be distributed to the next of kin, in the order of spouse, children, etc. If both dead, and without will, the children will generally be the beneficiary of the estate.

Question: Will taxes be deducted from RRSP withdrawal if I am unemployed?
Lets say Dave has been contributing to his RRSP and has $30,000 on the account. All of a sudden he is unemployed. Will he be paying taxes if he withdraws money from RRSP? How much can he withdraw per year and not be taxed?

Answer: There will be a withholding tax of 10% when he cashes his RRSP. His refund of taxes paid will come when he files his income tax.

Dave will be able to withdraw the minimum of $10,350 for 2009 and not be taxed. If Dave has more tax credits such as dependents, transit passes, etc.. then he will be able withdraw more than $10,350 tax free.

Question: Can a corporation contribute to owner’s RRSP and deduct it as expense?
In Canadian Income Tax act, can a corporate contribute to the owners’ RRSP and deduct it as an expense?

Answer: The easiest way for the corporation to contribute to the shareholder’s RRSP is to pay the owner a salary and have the owner put the amount into the RRSP directly.

If the corporation simply pays the amount into the shareholder’s RRSP, it would be considered a shareholder’s benefit. The problem with this is it is included in the owner’s income, but without a corporate deduction.

One other possible solution is for the corporation to set up an Individual Pension Plan. This is basically a Registered Pension Plan with the only beneficiary being the owner. In this case, the corporation can contribute directly into the RPP and claim the deduction on its return. Also the IPP can be set up to be a defined benefit plan. The drawback of the IPP is that it is expensive to set up and maintain.

Question: Spousal RRSP Dispute?
Recently I came across some paper regarding a spousal RRSP that was opened 17 years ago. My boyfriend and I split 15 years ago and I had completely forgotten about it. I no longer deal with the bank holding the RRSP and would like to transfer the funds into my own Canadian bank account. I spoke with my ex who seems to be hesitant to fill out the paperwork for the transfer, stating he has been using it all this time for his “canadian tax equalization” (he lives in Australia, I’m in the US now). Do I have any recourse with this? I am not at all comfortable having anything in joint name after all this time.

Answer: If it is a spousal RSP in your name (you are the owner) you can withdraw the money. To transfer the money out to another institution you would need to prove that you and your ex are no longer together and a separation agreement would be needed to transfer the money out. If your ex is the owner of the account and you were the contributor then the plan is not yours it would be your ex’s.

Where are the statements sent to? You will need the most current statement of the account when you go talk to the advisor.

The best thing to do is speak with the financial advisor who will advise on what steps to take and how to withdraw the money.

Question: RRSP’s in Ontario Canada?
Can I pull money out of 2 different RRSP accounts for my down payment on a first house. And am I able to pull money out of a work RRSP? I do know they need to be re-paid in 15 years and a max of $20,000.

Answer: Yes as long as you qualify for the home buyers plan the number of accounts the money is drawn from doesn’t matter. As of Jan 27 the maximum was increased to $25,000.

Question: I am thinking of buying a house worth $200K. I also have around $400K savings in my RRSP. (I am semi-retired)?
My question is: 1. Should I withdraw $200K from my RRSP to buy the house instead of getting a mortgage? The RRSP returns on GIC is very low.
2. Or should I get a mortgage for 25 years, and pay-off lump-sum annually?

Answer: In my opinion, I would take $25K out of your RRSP under the Home Buyer’s Plan since there are no tax implications for doing so. If you take more than that out of your RRSP, you will be taxed on the full amount. Take out the mortgage for the remainder of the purchase price. The interest on the mortgage is tiny compared to the tax bill you will have to pay on your RRSP withdrawal.

You should speak with your financial advisor about which option is best for you.

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