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Annually, Capital City Savings prints a detailed and comprehensive "Understanding all the Basics" RRSP booklet. This book explains in detail what an RRSP is, its purpose, how you start investing and much more. For a copy of your own, please visit one of
our branches.
The following topics/questions are included in the booklet among many others, but we have included a selection of FAQs here for your convenience:
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What is an RRSP?
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Who is eligible to contribute?
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Definitions of Spouse/Common-law Partner
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Contribution deadline
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Can you borrow for an RRSP?
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How safe are RRSP investments?
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What types of RRSPs are available?
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What should you look for in an RRSP?
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Can you withdraw funds?
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Can you leave funds in an RRSP indefinitely?
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What happens if you die?
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The Home Buyers' plan
A Registered Retirement Savings Plan is a government approved plan through which you save money for your retirement years. Your contributions, within limits, are tax deductible, and the income earned is tax sheltered. You can have any number of plans.
Anyone with "earned income" subject o Canadian taxation, including non residents, may contribute to an RRSP. Even if you are not taxable, you should file a tax return to report your earned income and create RRSP deduction room.
You can make part or all of any contribution to a plan in your spouse's or common-law partner's name. You, as the contributor, are still entitled to the tax deduction. Contributions can be made until the end of the year in which the plan holder's 69th birthday occurs. An over-contribution can be carried forward beyond this year and deducted in subsequent years providing you have earned income on which to base the deduction.
As of 2001 the term "spouse" applies only to a person of the opposites sex who is a party to a legal marriage.
The term "common-law partner" is defined as two persons, regardless of sex, who have cohabited in a conjugal relationship, normally for a continuous period of at least 12 months. This period can be less than 12 months if both spouses are the natural or adoptive parents of the same child, or if your partner has a child who is wholly dependent on you for support and over whom you have custody. The common-law partner definition applies until the cohabitation has ceased for 90 days.
You may contribute any time during the year. Contributions made during the first 60 days of any year may be deducted for the current or the immediately preceding taxation year.
If you are contributing by mail, your application and/or deposit must be received by the plan issuer on or before the contribution deadline.
Yes, but you can not deduct interest on money you borrow to contribute to and RRSP. You should not use an RRSP as security for a loan. If you do, you could be taxed on the value of the plan.
Before you invest in any RRSP, ask about deposit insurance protection. There is no insurance on mutual funds*, nor on most investments commonly held in self-directed RRSPs.
There are 3 basic types of individual plans available:
Deposit type plans: the most common plans offering familiar savings options including saving accounts, term deposits or guaranteed investment certificates (GICs). The rate of interest may be variable, fixed, or index-linked
Mutual Funds*: there are many types of mutual funds available. Common types are money market funds, income funds and equity funds. Since mutual funds do and will fluctuate in value, they don't provide a guaranteed rate of return. Mutual funds are not covered by deposit insurance.
Self-Directed Plans: with this kind of plan, you can make all your own investment decisions within a wide range of qualified investments. A trustee does all the administration work for you. A self-directed plan by be uneconomical for those with limited RRSP funds, because of the normal administration and transaction fee.
Look for the plan that has the best potential return for the risk you are prepared to take.
If there are fees involved, take them into account in comparing the anticipated annual growth. Remember, a front-end load reduces the amount invested. If for any reason you prefer a short term investment, make sure that your plan can be terminated quickly and at little or no cost.
To compare the earnings on guaranteed type RRSPs, don't look just at interest rates. Ask for the net annual yield. The more you know about your RRSP before you invest, the better.
Funds in most RRSPs can be withdrawn in whole or in part, depending on the original conditions at the time the plan was established. The money you withdraw is taxable and will be reported on a T4RSP by the issuer of the plan.
No, you must either purchase a retirement income option or withdraw your funds before the end of the calendar year in which you reach age 69.
If your spouse is the beneficiary of your RRSP, or inherits these amounts under your will, the proceeds can be transferred to an RRSP, RRIF or annuity for your spouse. He or she will not have to pay tax on the funds until they are withdrawn. If your spouse is over age 69, he or she can use all or part of the funds to purchase a retirement income option. (
eg. RRIF
)
If your beneficiary is a child or grandchild who was financially dependent on you, there are a number of options available for continued tax sheltering - contact your personal banker for more details.
In all other circumstances, your RRSP funds are taxed on your final tax return. The result is the same as if you had withdrawn your RRSP immediately before your death.
Each eligible RRSP holder can withdraw, without immediate taxation,up to $20,000 to be used as part of a down payment for a qualifying residence. Income tax will not be paid on any portion of the withdrawal repaid to an RRSP before or during the 15 year repayment period. The repayments will not be tax deductible.
*Mutual Funds are offered through Credential Asset Management Inc. and mutual funds and other securities are offered through Credential Securities Inc. and
Credential Direct™
, a division of Credential Securities Inc., which operates as a separate business unit. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, cash balances, mutual funds and other securities are not covered by Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated. Credential Securities Inc. is a Member-CIPF.
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