2) WHO CAN CONTRIBUTE
Anyone 69 years or younger. There is no
minimum age. However, the last year you can contribute is the
calendar year during which you become 69 years old. In 1997 if you
become 70 or 71 years you still can contribute for the last time.
3) AT WHAT DATES SHOULD I CONTRIBUTE TO MY RRSP
Allowable contributions made in a calendar
year or within sixty days after the end of the year can be deducted
from that year's taxable income. Therefore contribution made between
January 1st 1998 and March 1st 1998 could be used as a deduction
from the taxable income of either 1997 or 1998. It is always better
to contribute early in the year as the longer money stays in the
plan the more tax free interest it accumulates in the plan.
4) CAN I WITHDRAW FUNDS FROM MY RRSP
Whenever you withdraw funds from your RRSP it
will be treated as income and you will have to include it in your
taxable income and pay tax on it. Incidentally this income is not
considered earned income for the purpose of calculating your
contribution limit (see 4 above). Also note that when you make a
withdrawal from your RRSP 10% tax is withheld on $5,000 or less and
20% on $5,001 or more. You will get credit for this tax when you
file your return.
5) WHAT IS THE TAX EFFECT WHEN I RETIRE AFTER 65?
If you withdraw the entire amount you will
have to pay tax on it. You can leave it in the plan until you are 69
(for 1997 70 or 71 years) or you can take out an ANNUITY and receive
a fixed amount every year for the rest of your life or a
predetermined number of years. You can also transfer it to another
type of plan called the RRIF. This plan will allow your savings to
continue to accumulate tax free but you have to withdraw a minimum
amount based on your age which should be included in your taxable
income. In both cases you can take advantage of the $1,000 pension
deduction (non-refundable tax credit).
6) SHOULD I BORROW AND INVEST IN AN RRSP
Interest paid on borrowed money invested in an
RRSP is not deductible. If you do not withdraw funds from your RRSP
for a number of years it is usually to your advantage to borrow and
contribute. You should also take into consideration your level of
taxable income, interest you receive on your RRSP funds and the
interest you pay the lender.
7) WHAT IS A SPOUSAL RRSP
It is a plan similar to your own except
instead of your deposit going to your RRSP it will go to one owned
by your spouse. This would allow income splitting at retirement and
therefore alleviating the effect of high progressive tax on one
spouse by splitting the income between the two spouses and therefore
reducing the top tax rate. It will also allow both spouses to take
full advantage of $1,000 pension non-refundable tax credit.
Remember! if one spouse withdraws funds from his or her spousal RRSP
within three years of contribution it will be added to the
contributing spouse's income and he may have to pay tax on it.
8) ARE FUNDS IN THE RRSP PROTECTED
FROM CREDITORS IN THE EVENT OF BANKRUPTCY
No,
usually they are not. However, certain RRSP’s kept with insurance
companies are immune from creditors.
