Designed to help you answer the most important questions about RSPs.
What are the advantages of RSPs?
Aside from the obvious benefit of saving for your retirement, RSPs also have the following advantages:
- Contributions are tax-deductible and may result in a tax refund.
- Returns earned on RSP investments accumulate tax-free inside the plan.
- Investments are under your control.
- You can contribute anytime throughout the year and up to 60 days after the end of the year.
When is the contribution deadline for the 2009 tax year?
The deadline for the 2009 tax year is March 1st, 2010. Consult important Scotiabank RSP contribution cut-off date information here.
Who can contribute?
Canadian taxpayers with "earned income" in the previous tax year or those having unused contributions from previous years.
How much can I contribute?
In general, you can contribute either 18% of your previous year's "earned income" - subject to a dollar limit - plus any unused RSP room carried over from previous years, less pension adjustments, for the 2006 tax year. It is this dollar limit that will increase by $1,000 per year from $18,000 in 2006 to $22,000 in 2010 (as shown in the table below).
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Contribution Limit
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| 2007 |
$19,000 |
| 2008 |
$20,000 |
| 2009 |
$21,000 |
| 2010 |
$22,000 |
After 2010, increases to the annual RSP contribution limit will be indexed. The easiest way to confirm your contribution limit is to look at your Notice of Assessment, which you'll receive after you file your income tax return. Your Scotiabank Representative can also help you calculate your maximum contribution.
Can I make up missed contributions from other years?
Yes. Beginning with your 1991 contribution limit, you can carry forward any unused deductions indefinitely.
What if I contribute more than my limit?
You can overcontribute a maximum of $2,000 during your lifetime, and deduct the over-contribution in future years - provided you have contribution room against which the deductions can be applied.
If you exceed the $2,000 overcontribution amount, a penalty tax of 1% per month will be levied on the excess amount.
How many years can I contribute to my RSP?
Until December 31st of the year you turn 71.
What happens to my RSP when I turn 71?
What about cash withdrawals?
When you put money into an RSP, you get a tax break on it. When you take it out, it becomes income and therefore it is taxed. When you withdraw a particular amount, you'll have to record both the withdrawal amount and lump sum tax on your income tax return.
What is the Home Buyers' Plan?
With the Home Buyers' Plan (HBP), you can, effective January 27, 2009, take up to $25,000 out of your RSP to put towards the down payment on your first home and you won't be taxed on it.
However, you do have to pay it back into your RSP within 15 years. It's a great way to make the transition from renter to owner, especially when mortgage rates are working in your favour.
How do I go back to school using my RSP?
With the Lifelong Learning Plan (LLP), you can withdraw up to $10,000 a year, or up to $20,000 in total each time you participate in the LLP to help pay for your education. All you have to do is repay at least 10% per year for up to ten years. Generally, your repayments start 5 years after your first withdrawal.
Is it really better to invest in my RSP sooner rather than later?
It sure is. From the time you invest in your RSP, not only do the returns earned remain tax-sheltered, they increase the value of your investments at retirement through the power of compounding. In other words, the earlier you start to contribute and the longer you leave your money invested, the greater the results.
The above example is based on a $3,000 annual investment made each January 1st and assuming a 7.5% per annum compound annual rate of return. Note the non-registered investment assumes 40% income tax.
Can I contribute now and deduct later?
Yes! You can claim undeducted contributions in future years - even past age 71.
If you know you'll earn significantly more in future years than you do today, and you have income that against which you can claim an RSP deduction, then it may make sense to contribute to your RSP now, without claiming the full deduction.
Your money will earn tax-free returns now and you can use the deduction later. Just make sure that you don't overcontribute.
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