The things you need to think about when it comes to your RRSP will differ based on your life stage and investment history. You’ll have different questions if you’re nearing retirement than if you’re just starting off.
Each year, you should touch base with your financial advisor to ensure that you are properly adjusting your plan as you move through your life. In the meantime, here are some common questions we get asked to quench your RRSP curiosity, sorted by life stage (but do yourself a favour and read them all since hey, knowledge is power).
When you’re just starting off
How much can I contribute?
It’s up to 18% of your earned income and the balance carried forward if you don’t use it. It’s better to be safe than sorry—if you think you’re close to your limit, double-check it through your CRA online account.
What’s the easiest way to save?
A good rule of thumb is to pay yourself first. Save a little piece off each paycheque before you spend your money on an exciting vacation or a new outfit. Have it be automatically transferred into your RRSP through a pre-authorized credit—it’s way easier than coming up with a lump sum all at once later on.
No matter how large or small the contribution is, it’ll add up quicker than you think.
What is the penalty when I withdraw my funds?
When you put money into an RRSP, the idea is that you leave it alone until you withdraw it for retirement. It’s good to know what the implications are if you do decide to withdraw it earlier than you initially planned. Essentially, you’ll be taxed on the money you withdraw. The more you withdraw, the more taxes you pay.
Should I pay off my debt or save for retirement?
Pay off any high-interest debts, and then save for retirement. However, keep in mind that the sooner you start depositing money into your RRSP, the longer it has to grow.
If you have no high-interest debts, then putting money into an RRSP could get you an income tax return and you could pay down your debts with your tax return cheque—talk to your accountant first.
When you’ve been saving for a while
How do I transfer my RRSPs?
Did you know that you can transfer your RRSPs between financial institutions? There can be service charges, but it can be worth it in the long run. Book an appointment and bring your current statement to one of our branches. We’ll let you know your options.
If you decide to switch over your RRSP, we’ll do all the work to get it over here. No need to run back and forth between us and other financial institutions. We’ve got you.
Should I invest my RRSP in GICs or mutual funds?
Or maybe both? Your goals and timeline will dictate this. If you have more than one goal then you may need different investments for each goal. Chat with an advisor (we’re a little biased, but we know some good ones). These are important decisions and you shouldn’t have to make them alone. We’ll take a look at your goals, your timeline and your lifestyle and see what’s realistic and fits best.
Is the money I put into my RRSP actually tax-free?
No, not exactly. It does help you pay less tax though. You don’t pay income tax on RRSP contributions that you make in the current year or the first 60 days of the following year. You also don’t pay tax on the growth of the money in your RRSP. Eventually, you’ll pay taxes when you withdraw your money – ideally, you’ve deferred this until retirement and you’re then in a lower tax bracket, so you pay fewer taxes. See how that worked there?
When you’re ready for retirement
What happens to my RRSP when I retire?
Congratulate yourself, eat your retirement party cake and finally reverse the process and start to spend it. But you want to spend it intelligently, and with a plan. You’ve worked so hard to save it, after all. Once you’re nearing retirement, come chat with us and we’ll help you get that plan in place. We’ve helped lots of people through this process and there are a lot of things to consider. It’s normal to have a lot of questions; we’re here to help.
Talk to the experts
We can help you review what you have, what your goals are and what you need to do to reach them. If you have any questions about setting goals, investments, moving your RRSP over or anything else, connect with us.