Registered Retirement Savings Plans - RRSPs

A Stone-Hedge Financial Group Inc. financial advisor is there to provide service and advice with plan set up, investment selection and ongoing support to each individual client. During ones working years contributions are made to save for retirement into their RRSP. This money is invested and grows tax deferred until it is needed at retirement. At retirement the RRSP is converted into a RRIF by no later than age 71. Once it is converted into a RRIF there are mandatory annual withdrawals that have to be taken from the account. The mandatory minimum RRIF withdrawals are based on a specified percentage of the account value and rise with age. When the money is withdrawn from a RRIF one has to pay income tax based on their personal marginal tax rate.

How to set up an RRSP

You can set up RRSPs through financial institutions such as a banks, credit unions, trust companies and insurance companies. A Stone-Hedge Financial Group Inc. financial advisor will set up the plan and advise you on your investment options.

You can also set up a spousal RRSP for your spouse or common-law partner.  

In a spousal RRSP your retirement income is more evenly split between you and your spouse or common law partner. The tax benefit is the higher-income spouse or common-law partner can make contributions to a spousal RRSP set up for the lower-income spouse or common-law partner. The contributing spouse or common law partner receives the full tax deduction for the contributions made into the spousal RRSP. At retirement the lower income spouse or common law partner receives the income. The retirement income received from the spousal RRSP by the lower income spouse of common law partner is taxed at a lower tax rate than would of otherwise been taxed if received by the higher income contributing spouse or common law partner in their own individual plan. 

Contributing to your RRSP

When you make RRSP contributions to your RRSP you can claim the deduction on your taxes for the calendar tax year.  The amount you are eligible to contribute is based on a percentage of your current year income up to the maximum RRSP contribution limits for that year and any unused contribution room that you accumulated from prior years. Combined these two amount are referred to as your RRSP deduction limit. Your accumulated RRSP contribution room limit amount is sent to you by CRA annually on your notice of assessment or notice or reassessment. If you do not use your RRSP contributions in any given year starting from 1991 onwards they will accumulate and can be used in any given year thereafter. 

Contributing to Spousal RRSP for your spouse's or common-law partner's RRSPs

The amount you are able to contribute to a Spousal RRSP for your spouse or common law partner is the same as if you made a contribution to your own RRSP. Contributions made into a Spousal RRSP will reduce your own RRSP deduction limit. If you cannot contribute to your RRSP because of your age, you can still contribute to your spouse's or common-law partner's spousal RRSP until the end of the year he or she turns age 71. 

RRSP Deadline for contributions

You can contribute to your RRSP or to a Spousal RRSP anytime within the current calendar year and within the first 60 days of the following year. Any contributions made in the first 60 days of the following year can be used for the prior year or the current year for your tax deductions. This is referred to as your RRSP deadline which is March 1 in any given year. 

Excess contributions

Generally, you have to pay a tax of 1% per month on your contributions that exceed your RRSP deduction limit by more than $2,000

The $2,000 is reduced when you have a negative RRSP deduction limit due to a Past Service Pension Adjustment (PSPA) amount. In order to qualify for the additional $2,000 amount that exceeds your deduction limit you must be age 19 or older in the prior year.

What you cannot deduct

You cannot claim a deduction for any of the following:

1. amounts you pay for administration services for an RRSP;

2. brokerage fees charged to buy and dispose of securities within a trusteed RRSP;

3. the interest you paid on money you borrowed to contribute to an RRSP;

4. any capital losses within your RRSP.

Transferring Money to your RRSP

You can transfer money to your RRSP from the following:

1. Retiring allowances,

2. lump-sum payments,

3. transfer of property, 

4. commutation payments.

Can I take Money out of your RRSP without penalties?

There are several programs that allow you to withdraw funds from your RRSP without penalties. According to CRA funds can be withdrawn without penalties under the following programs:

1. Home Buyers' Plan (HBP)

The Home Buyers' Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year. You do not have to pay interest on the amount you withdrew.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, otherwise they cannot be used as a deductible. 

Repayments of your RRSP under the Home Buyers' Plan (HBP)

Over a period of no more than 15 years, you have to repay to your RRSPs the amounts you withdrew under the HBP. Generally, for each year of your repayment period, you have to repay 1/15 of the total amount you withdrew, until the full amount is repaid to your RRSPs. Your repayment period starts the second year following the year you made your withdrawals.

To make a repayment under the HBP, you have to make contributions to your RRSPs in the year the repayment is due or in the first 60 days of the following year. You can contribute the repayments to any of your RRSPs if you have more than one plan. Once your contribution is made, you designate all or part of the contribution as a repayment under the HBP. If you do not repay the amount due for a year it will have to be included in your income for that year and taxed.

2. Lifelong Learning Plan

Repayments to your RRSP under the LLP

When you withdraw funds from your RRSP under the LLP, you have up to 10 years to make repayments to your RRSPs. Each year you have to repay  a 1/10 of the total amount you withdrew until the full amount is repaid. You do not have to pay any interest on the amounts you withdrew.

What are the penalties for withdrawals from RRSPs

Financial Institutions are required to withhold tax on your withdrawals. The withholding tax is as follows:

• 10% (5% in Quebec) on amounts up to $5,000;

• 20% (10% in Quebec) on amounts over $5,000 up to including $15,000; and

• 30% (15% in Quebec) on amounts over $15,000.

How can I withdraw money from a Spousal RRSP 

If you made a contribution to a spousal RRSP for your spouse or common law partner they have to make the withdrawals. Withdrawals from a spousal RRSP by your spouse or common law partner are subject to attribution rules. If any of the funds contributed are withdrawn withing the first three year the contributor who initially made the contribution to the spousal plan is taxed on the withdrawal. The three year restriction is based on calendar years from the date of the contribution not the actual date of the contribution. All subsequent contributions are subject to the same restrictions as the initial contribution into the spousal RRSP. After three years withdrawals from a Spousal RRSP by your spouse or common law partner are no longer subject to attribution rules.They are taxed as income based to your spouse or common law partner based on their personal marginal tax rate. There is no limit on the amount your spouse or common law partner can withdraw from their spousal RRSP, they can withdraw a specific dollar amount or all the assets in the plan.

The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.