Benefits of RRSPs

January 6, 2012

Happy New Year!
A good way to kick off the New Year is to make sure that you’ve made plans to pay as little tax as possible when it’s time to file your 2011 tax return. RRSPs provide a great way to reduce the taxes that you owe for the previous year. You have until Feb 29th, 2012 to make an RRSP contribution for 2011. Some benefits of investing in RRSPs are:

All of the Growth is Tax Deferred
Your money grows at an increased rate since you don’t have to pay tax on the gains. The tax becomes payable when you withdraw the money.

You have the Opportunity to Split Income with Your Spouse
If your spouse is in a lower tax bracket, you can make a contribution to a spousal RRSP on his or her behalf. You would save the tax at your higher tax rate. When the money is withdrawn, it becomes taxable to your spouse at his or her lower tax rate, providing that the withdrawal happens more than three years after the last spousal deposit. The end result is that the family pays less tax overall, both now and in the future.

You are Providing a Source of Income for Your Retirement
Fewer individuals have pension plans and government benefits aren’t sufficient to maintain the lifestyle that most of us now enjoy. Did you know that those who qualify for full CPP in 2012 will receive $986 per month? However, not everyone qualifies for the full payment, since the amount you have contributed is based on your salary. The average monthly payment received in 2011 was $534. It is the responsibility of each family to make sure they can maintain their lifestyle and provide for future care.

RRSP Loans are Available
For those that want to contribute to RRSPs but don’t have the extra cash on hand, RRSP loans are available. With interest rates being so low, this is a good time to take advantage of them, if they makes sense when the rest of your finances are taken into consideration.

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