March is closing in, and it’s time to start thinking about RRSPs
The registered retirement savings plan, or RRSP for short. We all know about them, we all like them, and we all… don’t really quite understand them. Ask yourself how much information do you know about the RRSP? Some people contribute to their RRSP for decades without really knowing what they are or why they’re helpful. So, let’s take a closer look at it and offer a few helpful advice to help you decide if an RRSP is the plan for you.
1. The RRSP offers a tax deduction
What does this mean? A tax deduction means that any amount you contribute into an RRSP lowers your taxable income by that same amount. This means that if someone makes $50,000 a year, and contributes $5,000 into their account, their taxable income would be $50,000 – $5000 = $45,000.
2. You can invest in many different options with an RRSP
Contrary to popular belief, the RRSP is a special account. It is not an “investment” in and of itself. For example, within your RRSP, you could be invested in mutual funds, stocks, private shares, or even just a plain old GIC. These are all investment vehicles which can be held in such account.
3. The RRSP is a tax shelter
A tax shelter might seem like an interesting term, because of some new stories regarding celebrities and billionaires having “tax shelters” in obscure locations around the globe. But the RRSP is much less nefarious than that. It simply means that any money you make from the investments within your RRSP is not taxed, until you decide to make a withdrawal.
4. Some companies offer RRSP benefits
RRSP benefits usually come in the form of “matching”. Where an employer might match your own contributions into an RRSP, up to a certain percentage of your income. Of course, this comes with some stipulations when it comes to making withdrawals or transferring your money, but generally speaking, it’s a good idea to take advantage of this benefit.
5. The contribution deadline for the 2017 tax year is March 1st, 2018
If you wish to earn tax deductions for your 2017 tax year, you must do it before March of 2018, or else you must declare the contribution on your 2018 tax year. Usually this isn’t too much of a problem, because it’s not as if you lose out on the tax deduction. However, if you’ve had an extraordinarily fruitful 2017, then getting your tax deduction for 2017 could be important to you.
With great knowledge, comes great responsibility. Now that you know more about RRSPs, it’s up to you to make the decision of whether or not the RRSP is right for you. But just make sure you make that decision before March 1st, okay?
Should You Close Your Old Credit Card?
Why is the price of Bitcoin going through the roof?
Expenses to eliminate or reduce