RRSPs are one of the best ways to save for retirement. Individuals without a corporate or government pension plan may feel more obligated to contribute to their own retirement. Even individuals with pensions may want to utilize one of the few ways they can lower their taxable income. Individuals between the ages of 18-71 should consider this option if they have earned income. Tax deductions may be available for contributions and all of the income earned on those contributions compounds on a tax-deferred basis until they are deregistered.
You have four options when collapsing your RRSP (age 71): 1. Roll your funds into a Registered Retirement Income Fund (RRIF) 2. Purchase an annuity 3. Take your RRSP savings in one lump sum payment 4. Combination of the above options The third option is generally not advisable since cashing in your RRSP means being taxed on the whole amount, which could result in a hefty tax bill. Converting to a RRIF is the right choice for most investors, because a RRIF is the most flexible of your retirement income options.
Spousal RRSPs
All or a portion of your contribution can be made to a spousal plan (which is in your spouse’s name), but as the contributor, you get the deduction. Contributing to a spousal RRSP can be an effective way of income splitting, since the income that will
be eventually withdrawn from the RRSP will be taxed in the hands of the spouse, who will be in a lower tax bracket. Attribution rules state that any funds withdrawn from a Spousal RRSP in the year of, or two years following a spousal contribution must be taxed in the hands of the contributor. The amount taxable will be the lesser of the amount withdrawn or the contribution amount.
Year
|
Maximum Deduction Limits
|
2005
|
$16,500
|
2006
|
$18,000
|
2007
|
$19,000
|
2008
|
$20,000
|
2009
|
$21,000
|
2010
|
$22,000
|
*After 2010, the limit increases will be tied to the growth in average wages.
