If you’re a new Canadian citizen or resident, you undoubtedly came here with many goals and dreams for your future and the future of your children. You may also have given some thought to your retirement. But saving for a successful retirement can present financial challenges, especially if you have other financial priorities, like buying a new home or saving for a child’s education.
The good news is there are investment options that can help; a key one being a Registered Retirement Saving Plan (RRSP). An RRSP is a personal savings plan that allows you to build a retirement income for your future while giving you tax benefits today.
“In order to take full advantage of an RRSP, investing early and regularly no matter what your age or how close you are to retirement is important,” says Wendy Seto, Branch Manager at RBC Royal Bank®. “That’s because the money you put in the plan begins to grow on a tax-deferred basis immediately. Providing you with the benefit of tax sheltering and the opportunity for growth.”
The concept is simple, money invested in an RRSP, grows tax-sheltered until it is withdrawn. The RRSP must be closed and paid out as a retirement income by the end of the year in which you reach age 71. You will then begin paying taxes on the funds. Chances are you may be in a lower tax bracket when you retire, so you may not be taxed as much as you would be when you originally made the contributions and earned income in the plan. Even if not, the years of tax deferral allow you to earn extra income using government money.
But tax deferred growth isn’t the only benefit to investing in an RRSP. Contributions to your plan also reduce your current taxable income for the year. For example, someone in Ontario earning $50,000 a year will get just over $300 back for a $1,000 RRSP contribution. That’s money in your pocket now.
Investing in an RRSP is a smart, tax-efficient way of saving for retirement, but it’s important to remember that an RRSP is not an investment in and of itself. It’s simply a special type of savings plan, so you’ll need to select the specific investments to hold within it. Here you have many options.
“Within your RRSP, you might hold savings deposits, mutual funds, stocks, bonds or any number of other investments,” adds Wendy Seto. “The type of investments you choose will depend on your retirement goals and your investment profile. This is where a financial advisor can help. They will also help you build a plan according to your unique goals and circumstances as a newcomer to Canada.”
In order to take full advantage of your RRSP, there are a few things you need to keep in mind:
• Whatever your age or personal situation, it’s never too early to contribute: In fact, the earlier you start making contributions, the better off you’ll be towards achieving your financial goals for retirement.
• Make your contributions before the yearly deadline: To claim a deduction on your taxes for the current year, you can make contributions anytime during the year, or up to 60 days into the following year.
• Know your RRSP contribution limits: There is a limit on how much you can contribute each year. The annual RRSP contribution limit is the lesser of 18% of your earned income in the previous year, or the maximum set by the Canada Revenue Agency, Your limit is provided by the CRA when you file your income tax returns.
For more information on the RRSPs, please visit your nearest RBC® branch, call 1-866-756-1106 or visit: www.rbc.com/firstrrsp . For more information on other RBC products and services for newcomers to Canada, please visit rbc.com/canada
Financial planning services and investment products such as mutual funds are offered through Royal Mutual Funds Inc. (RMFI) and guaranteed investment certificates and credit products are offered through Royal Bank of Canada. RMFI, RBC Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada, The Royal Trust Company and Phillips, Hager & North Investment Management Ltd. are separate corporate entities which are affiliated. Royal Mutual Funds Inc. is licensed as a financial services firm in the province of Quebec.
®Registered trademark of Royal Bank of Canada.
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