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RRSP Frequently Asked Questions
1. What’s so great about RRSPs?
RRSPs are government approved tax deferred savings plans that provide
private funds for retirement. Contributions to RRSPs are tax deductible,
within limits, thereby reducing your taxable income. As well, the earnings
in an RRSP are not taxed until you withdraw them. The growth of your
RRSP increases rapidly because 100% of these earnings can be reinvested
and compounded.
2. Who can contribute and is there a limit on contributions?
Anyone with "earned income" such as employment earnings, net income
from self employment and net rental income, who is less than 70 years
of age or has a spouse less than 70 years of age may contribute to an
RRSP. Your contribution limit for 2001 is 18% of your 2000 earned income
to a maximum of $13,500, less your pension adjustment. This information
can be found on your 2001 T4 slip. When the maximum eligible RRSP contribution
is not made in the year, it is possible to carry forward the unused
portion to the following year.
3. What happens if I can’t use my total contribution limit
in a year?
If you don’t claim your maximum RRSP contribution, you can carry forward
the unused deduction for up to seven years.
4. What’s a spousal contribution?
This allows you to deduct on your income tax return amounts contributed
to RRSPs for your spouse (including common-law spouse). If one spouse
will be in a higher tax bracket in retirement, as much of the RRSP funds
as possible should be accumulated in the name of the spouse who will
be in the lower tax bracket. The reason for this is that upon retirement,
the income from the RRSPs will be taxed at that spouse’s lower tax rate.
5. Should I borrow money for an RRSP?
The immediate tax savings and earnings of an RRSP plan, makes borrowing
for an RRSP a good idea. For example: let’s say that you borrow $1,000
at 7% and invest it at 5%. If your marginal tax rate is 40%, here’s
how it works:
| Tax savings (40% of $1,000) |
$400 |
| RRSP earnings (5% on $1,000) |
$ 50 |
| Borrowing cost (7% $1,000) |
($39) |
| Your net gain |
$411 |
Should you pay down your loan with the tax savings, your
borrowing cost is reduced and you receive an even higher net gain.
6. What does an RRSP cost?
At Carpathia, there are no fees for purchasing RRSPs. Your money works
for you with no front-end, back end or administration fees.
7. How safe are my RRSPs at Carpathia?
All deposits are fully guaranteed by the Credit Union Deposit Guarantee Corporation, giving you security
and peace of mind.
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