16 Jan Woodstock Trustee Gives Debt Help: Be Proactive, Invest In Your RRSP Early
With the changes coming to the Canada Pension Plan and the likely cancelation of the ORPP program, many are focused on retirement planning and saving. One of the main programs Canadians use to save for retirement is the RRSP. Too often Canadians start saving later in life. This blog post will focus on the benefits that come with starting early.
At McLennan and Company Ltd., we offer services for individuals and families for debt help in Woodstock, London, Ingersoll and surrounding areas.
What is an RRSP?
An RRSP or Registered Retirement Savings Plan is a retirement savings plan that you establish, that is registered with the Canada Revenue Agency. You or your spouse or common-law partner make contributions to the plan. These deductible RRSP contributions can be used to reduce your tax burden.
Any income you earn in the RRSP is usually exempt from tax as long as the funds remain within the plan. You will generally have to pay tax when you make withdrawals from the plan.
Tax Benefits of RRSP
By contributing to an RRSP throughout your working career, you’ll realize immediate tax benefits at a time when your income is generally highest. The total amount of your annual contribution can be deducted from your gross income at tax time, reducing the amount you pay in income tax that year.
Please see an example below for how an RRSP benefits you at tax time:
|No RRSP Contribution||$5,000 Contribution|
|Deferred Tax Savings||$0||$1,250|
As stated above, your savings grow tax-free in the RRSP. The benefit of starting an RRSP early is that money is compounding tax-free over time and growing without taxes.
Starting an RRSP at any time during your career has benefits, but the earlier you start, the greater the benefits you will receive from the compounding of interest.
Underestimating Retirement Needs
The vast majority of Canadians underestimate what they will need for retirement, hence the recent announcement of the expansion of the CPP. However, even with the expansion, most Canadians will need private savings to maintain the lifestyle they want in retirement.
Starting early gives you the benefits of tax breaks, compound interest and better prepares you for retirement.
First Time Homebuyer’s Plan
RRSPs are not just used for retirement – the Canada Revenue Agency has created the First Time Homebuyer’s Plan.
This is a program that allows you to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (for a couple it is $25,000 each for a total of $50,000) to buy or build a qualifying home for yourself. You must intend to occupy in the qualifying home as your principal place of residence within one year after buying or building it.
It is important to note that these funds have to be paid back. Generally, you have up to 15 years to repay to your RRSP. However, you can repay the full amount at any time.
In addition to sound financial planning for your future, you may need professional assistance for debt help in Woodstock, London, Ingersoll and surrounding areas.
At McLennan & Company Ltd. we focus our work on helping individuals and families who want to start over financially. Contact our head office in London, Ontario at 519-433-4728 or fill out our online form and someone will contact you within one business day to schedule a consultation.
We know that this is a difficult time for you and your family and we offer free initial consultations. For your convenience, in addition to our office in London, we also have satellite offices in Ingersoll and Woodstock and offer flexible appointment times.