The RRSP is Canada’s Registered Retirement Savings Plan. The plan was created to provide Canadians with incentive to save money for retirement. With the ever decreasing amount of pensions for those who work, saving for retirement is very important and highly recommended on the mechmoney website. Lastly, here are 5 RRSP facts that you may have never heard before!
RRSP Mortgage – 5 RRSP Facts you didn’t know
In your RRSP you are able to hold your own mortgage. It is often referred to as a non-arm’s length mortgage. Now, there are a bunch of rules that you would have to adhere to. Number one, you must charge yourself interest at a competitive rate compared with the mortgage market. Number two, it can be hard to set this up as you will need to find a financial institution to help set it all up.
Once it is setup there are many advantages to funding your own mortgage. First of all, payments and interest collected that you charge to yourself are paid to you. This will help increase your financial investments for retirement. Secondly, if you are not up to speed with all the excellent investment options there are today, investing in your own mortgage would be a great fit. Lastly, even if you don’t need the mortgage for yourself, you could use this option to fund a family members mortgage or even just for renovations on your own home!
Minimum Age to Contribute – 5 RRSP Facts you didn’t know
Do you know what the minimum age is to contribute to a Registered Retirement Savings Fund? Well, that was a trick question as there really is no minimum age to make you eligible to contribute to a RRSP. The requirement states that you must have made an income in the taxable year and you must file a tax return. Imagine that you know someone who has a 10 month old baby. That baby starred in a TV commercial. Assuming the baby was paid in order to be in the TV commercial, he or she would be eligible to make an RRSP contribution.
That’s all it takes! Just an income and a tax return to be eligible to Contribute to an RRSP. Can’t say that about the TFSA can you!?!
Contribution Room – 5 RRSP Facts you didn’t know
Each year there is a specific amount of money that you are eligible to contribute to your RRSP account. This amount is related to your previous year income as a percentage. To contribute to your RRSP in 2019, your contribution room would be 18% of your income earned from the previous taxable year up to the maximum set by the CRA. In addition to this you would also have all of the carry over room that had been unused in the previous years.
Here is the kicker. You are able to over contribute to your RRSP. You are legally able to exceed your contribution room by up to $2000. Now this is a lifetime amount. You cannot exceed your contribution room of $2000 every year as it is a lifetime amount. In addition you can not deduct those excess contribution from your taxable income.
Transfer of RRSP funds – 5 RRSP Facts you didn’t know
One fact in itself that you may not have known, is that you may have many RRSP accounts. There is no rule stating you must have only one RRSP account. You are also able to transfer RRSP funds from one account to another account. The financial institution that you are transferring funds to would be able to help you with this. Otherwise, you must fill out tax form T2033. You may find this form available on the CRA website.
Defer RRSP Deduction – 5 RRSP Facts you didn’t know
Using this past year as an example, let’s say you contributed $5000 to your RRSP in 2018. If you know that you did not have a high income throughout 2018, it may not be beneficial for you to claim the $5000 RRSP deduction in 2019 when you are completing your taxes. It may be best to defer your RRSP deduction until the following year. This only makes sense when you know that you are bound to have a better year in 2019 terms of income.
There are many situations where this would make sense. A great example would be from a student paying their educational tuition. Tuition can be as high as $10 000 or more for a given year. It is fair to say that student’s do not typically make a lot of money. It would not make sense for a student to claim the educational deduction if they only made part time money through the summer. In this situation, defer your deduction until you are working full time!