Registered Retirement Savings Plan (RRSP) 101

A Registered Retirement Savings Plan (RRSP) lets you build tax-deferred retirement savings.

Overview

A RRSP is a registered retirement savings plan that is registered with the Canada Revenue Agency (CRA).   The annuitant (Registered Owner) or annuitant’s spouse contributes amounts to the plan and these eligible contributions reduce the investor’s taxable income (in the form of a contribution receipt).

Money grows tax sheltered (no capital gains, interest or dividend payments are to be reported). Fund distributions are tax-free within registered plans. No T3 or T5 will be issued.

RRSPs provide retirement income when the plan matures (RRIF or annuity).

 

>RRSP Eligibility

Who can contribute to a RRSP?

As per CRA, anyone can contribute to an RRSP up to the end of the calendar year that they turn 71 years of age provided that they have:

  • Earned (Canadian) income that is taxable.
  • Social Insurance Number
  • Date of Birth

Earned Income includes the following:

  • Earnings from employment
  • Net income from any business you carried on alone or with a partner
  • Any disability payments you received from the Quebec or Canada Pension Plan
  • Royalties
  • Net rental income you received
  • Alimony you received (the amount of money one spouse pays to the other, by court order, for support and maintenance)
  • Net research grants
  • Employment insurance benefits, if any, you received during the year

 

From this total, deduct business losses, losses on rental income property and any alimony or maintenance payments made. The result is the “earned income” on which RRSP contribution room will be based. Please note that “earned income” does not, however, include investment income.

 

There are no age minimum requirements for investing in a RRSP.  Investors simply have to meet the eligibility criteria.  However, some financial institutions requires that in addition to meeting the CRA requirements for RRSP eligibility, the individual must be the relevant age of majority in their province of residence.

Contribution Limits

Contributions to a RRSP are tax deductible.  There is a maximum annual limit that an investor can contribute to a RRSP.  This is determined to be the lesser of the annual limit set by CRA (see chart below) or 18% of the investor’s previous year’s earned income for RRSPs:

  • minus the PA Pension Adjustment for RPP for the previous year,
  • Plus any RSP Carry Forward room (as described below) and any pension adjustment reversals (PARs).

 

The investor’s individual contribution limit, including unused room that carries forward will be indicated in their Notice of Assessment which is provided issued by CRA annually.  Total Income is reported on line 150 of their previous year’s notice of assessment.  Investment companies are not monitoring when an investor has reached their contribution limit.  It’s up to the investors themselves. CRA allows investor to over contribute to their RRSPs to a maximum of a $2000 lifetime without penalty of RSP over contribution.   For over contribution amounts above the $2000 lifetime limit, a penalty of 1% per month will be applied.

For current and previous CRA Annual Contribution Limits click on the CRA link below:

http://www.cra-arc.gc.ca/tx/rgstrd/papspapar-fefespfer/lmts-eng.html

Amounts not included in contribution Limit

The following amounts are not included in an investor’s RRSP Contribution limit:

  • Homebuyers repayments
  • LLP Repayments
  • Retiring Allowance 60J Contributions

 

Contributions made in the 1st 60 Days

You can also deduct RRSP contributions that you made in the first 60 days of the current tax year or in an earlier year that you did not deduct in any previous year.

RRSP Carry Forward Room

RRSP deduction limits from 1991 to current can be carried forward. This amount is called your “unused RRSP deduction room”. You can contribute the unused amount and top up your RRSP from 1991 calendar year until the lifetime of your plan, until the end of the year you turn 71.

 

What is the Home Buyers Program (HBP)?

 

The HBP Home Buyers Program allows you to withdraw up to $25,000.00 NET from your registered retirement savings plans (RRSPs) to buy or build a qualifying first home for your principle residence.

If you buy the qualifying home together with your spouse or other individuals, each of you can withdraw up to $25,000.00.

The Home Buyers program was implemented/start of program on February 25, 1992.

Changes to the program made in 1999, indicate that you can withdraw funds from your RRSPs under the HBP for someone else. This is the case if:

  • You acquire a qualifying home for a related disabled person, that is more accessible to, or better suited to the needs of, that person; or
  • You provide the withdrawn funds to a related disabled person to acquire a qualifying home, which is more accessible to, or better suited to the needs of, that person.
  • You do not have to include eligible withdrawals in your income, and your RRSP issuer will not withhold tax on these amounts. You can withdraw a single amount or make a series of withdrawals throughout the same year, provided the total of your withdrawals is not more than $25,000.00.

 

You have to repay or purchase back into your RRSP all withdrawals within a period of no more than 15 years. Generally, you will have to repay an amount to your RRSPs each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year, it will be included in your income for that year.

What is the Life Long Learning Program?

The Lifelong Learning Plan (LLP) lets you withdraw up to $10,000 a year from your registered retirement savings plans (RRSPs) to finance full-time training or education for you or your spouse.

The Lifelong Learning Program started in 1999.

You cannot use the LLP to finance your children’s education. As long as you meet the LLP conditions every year, you can withdraw amounts from your RRSPs until January of the fourth year after the year you make your first LLP withdrawal. You cannot withdraw more than $20,000 in total (for each LLP). You do not have to include the withdrawn amounts in your income, and the RRSP issuer will not withhold tax on these amounts.

You have to repay these withdrawals to your RRSPs over a period of no more than 10 years. Any amount that you do not repay when it is due will be included in your income for the year it was due.

Registered Education Savings Plans (RESP) 101

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