According to statistics from 2015, CBC has written an article in September of 2017 showing that only 35% of Canadians actually contributed to their RRSP. This is known as the registered retirement savings plan in Canada. Among our young investors in Canada, those who are under the age of 24, only 14% of Canadians under 24 are contributing to their registered retirement savings plan. Now with less than 3 weeks left in the 2017 tax season, I would highly suggest that you make your contribution for that specific tax year. Here are the top five reasons why contributing to Your RRSP is important.
#1 Tax Deductible- Why topping off your RRSP is important
Contributions to an RRSP are tax-deductible. This means that if you contribute an “x” amount let’s say $10,000 in the 2017 season you can expect on average, depending on your income, 33% of that back. Your income can be placed in to savings and the contribution amount that you make is then considered as an expense come tax time. The amount to be expected on average would be a check for $3,333, not too bad. Now of course if your income is significantly greater than average, you then can expect a check for almost around the area $5,000. On the flip side of that if you do have an income that is below average you can expect below the 33% mark.
#2 Tax Bracket Benefits – Why topping off your RRSP is important
You know that you’re not going to be working forever. You also know that you probably don’t want to work forever either. If you’re able to contribute to your RRSP when your tax bracket is relatively high due to your income, you can benefit greatly. The idea is that you pull money out of your RRSP when your income is much lower. In this case you benefit by the tax difference. You receive a lot of money back when your income is high and your contribution is also high. You will be taxed at a lower rate when your income is low and forcing you in to a completely different tax bracket vs when you were working. This is one great advantage to contributing to your registered retirement savings plan. Maximize your financial potential by taking the opportunity that this savings plan offers. Use it correctly to receive maximum financial benefit.
#3 Savings Grow Tax Free – Why topping off your RRSP is important
Savings within the RRSP grows tax-free. If you are investing in a balanced and diversified portfolio with the purchase of ETFs, you can expect between a 6 to 7% increase year by year on average. This is a must when you are using a registered retirement savings plan as growth tends to be exponential. The more that you are able to save, the more that these savings are able to grow. Relationships such as these are very powerful and especially when you don’t need to pay any tax on the growth.
#4 Tax Safe Withdrawls – Why topping off your RRSP is important
There are only a few reasons that make sense to actually remove money from your RRSP before you retire. We will look at two of these reasons. The first item is you can take advantage of the first-time home buyers plan. This allows you if you’re a first-time home buyer to actually buy your house using $25,000 out of your RRSP account to contribute to your down payment for the house. The second reason to remove money from your RRSP is by taking advantage of the lifelong learning plan. Use the life long learning plan to fund your education. You may do this any number of times throughout your life. Whether you’re young or middle-aged, it doesn’t matter. Even if you have an active first time home buyers plan where you have not yet fully paid it off, you may still participate in the life long learning plan. Another advantage of your registered retirement savings plan. If you are unsure you require your savings to pay for a house or education, using the RRSP will not hurt you. You will only benefit from this savings plan.
#5 Savings Incentives – Why topping off your RRSP is important
In general, having an RRSP incentifies saving money with special tax incentives. It is recommended to use the tax refund check to either top off your RRSP contribution for the next year or to place the check in to your TFSA. The tax free savings account is another investment vehicle that you have an opportunity to use together with an RRSP to provide great potential for future retirement or even Savings in general