Sure, RRSPs allow you to take control and prepare for a comfortable retirement. Advantages like tax savings on the purchase cost and accumulated capital are inducing more and more Canadians to contribute to an RRSP.
But even if preparing for retirement is an RRSP's ultimate purpose, it can lend a hand at every stage of life. Here are some examples that the representative can help with.
Your Twenties: Dreams
Travel or realize a dream
At 20 years of age, with your head full of thoughts of travel and other dreams you're impatient to achieve, you're reluctant to devote money to savings.
RRSPs can be the perfect compromise: by contributing to an RRSP, you'll save gradually while avoiding taxes. So when an opportunity arises, you can use your bigger tax return to make a dream come true. Now that's freedom!
Your Thirties: Action
Become a property owner
At 30, you start thinking about stability and other plans, like becoming a property owner, for example. If you start contributing early to an RRSP, the Home Buyers' Plan allows you to use your RRSP as a down payment on a property. Don't have an RRSP or it's not enough? Don't worry! A loan can be repaid easily with the tax savings you've made. Before you know it, you've laid the foundation's first stone!
Go back to school
Dread routine and monotony? If you're stuck in a go-nowhere job, why not go back to school full-time?...or university? And there's no need to stretch out your learning over five years attending night classes. The Lifelong Learning Plan allows you to withdraw an amount tax-free from your RRSP. It's a sensible way to balance your life and finances.
Be there as your children grow
On the family front, you're just starting to build. You want to have a child and be there as he or she grows. RRSPs can be the key. By withdrawing certain amounts, you can take a temporary break from work.
Your Forties: Crisis
Start a small business
At 40, you may want to take on new challenges. There's a lot to be said for independence! You can use your RRSP to start a small private business in Canada. Once all conditions are met, your financial institution transfers your business's shares to your RRSP. A cheque valued at the shares' rightful market value is paid to the new entrepreneur. The money withdrawn is nontaxable. Bye bye, boss!
Get back on your feet after a job loss
There's always a chance you'll hit hard times. Downsizing has become standard practice and, unfortunately, no one is protected from job loss. An RRSP can get you back on your feet. By withdrawing certain amounts, you can provide an acceptable annual income and focus your efforts on the job search. The absence of other sources of income minimizes the tax impact of withdrawals.
Take time for a break
Your weeks are overloaded and your family life is showing the strain. Weariness is starting to creep in. Before illness strikes, do what your doctor tells you and take the time for a carefully planned break. Your RRSP brings you the financial security you need.
Give yourself a cushion
When business is good, you can put an extra amount into your RRSP. You'll enjoy tax-free capitalization and a cushion for future deductions.
Your Fifties: the Last Stretch Before Retirement
Adjust your contributions to make retirement more comfortable
Your retirement dreams will soon be realized. It's time to take stock and determine how much you still have to contribute to your RRSP to have the amount you want at retirement.
Use your universal life insurance as a complement to your RRSP
When you've reached the eligibility limit for RRSP contributions, there's still a means of building capital tax-free-universal life insurance. It's both life insurance and a way to shelter your savings from the taxman. It's also the best solution for self-employed workers, business owners, and any other category of people without the eligible earnings for RRSP contributions.
Contribute to an RRSP for your grandchildren
There's more than one way for grandparents to show affection for grandchildren. When all conditions are met, an RRSP is a practical gift that will truly help them. Contributing to their RRSPs helps sensitize them at an early age to the importance of making full use of their RRSP's life cycle.
Your Sixties and After: Reaping and Sharing the Benefits
Make a foundation your insurance policy beneficiary
In taking out life insurance and transferring it to the organization of your choice, you'll be donating a substantial amount upon your death. Tax returns and other savings resulting from your RRSP contributions help pay the premium. The premium also qualifies you for a tax credit.
Continue to invest tax-free, even at retirement
Even if you can't keep contributing to your RRSP at retirement, universal life insurance is still the best solution for tax-free saving.
Take advantage of government plans to conserve your RRSP
Ideally, you should be able to conserve your RRSP for the longest time possible, even up to age 71! To do this, you can decide, for example, to take Canada Pension Plan benefits from your 60th birthday on. By using such other sources of income as a Registered Pension Plan, you can maintain your present quality of life while limiting the use of your RRSP to small expenses on the side.
Obtain help or homecare
The time may come when you'd like to benefit from help or homecare. An RRSP, transformed into an RRIF, will provide an income while it builds capital tax-free.
At all Stages of Life
To make a long story short, an RRSP is there for us throughout life. Knowing the advantages it brings, it's essential to establish a proper planning strategy with the help of a financial security professional.
Whatever your age, some fundamental principles remain: contribute regularly and early in the year, diversify your investments, and always keep your risk tolerance in mind.
Note: Certain conditions apply to the products. See RRSP use conditions for more details.
RRSP Use Conditions
Home Buyers' Plan (HBP)
Allows you to use up to $20,000 of your RRSP tax-free to buy a first main residence. You have 15 years to reimburse the amount withdrawn from your RRSP at a rate of 1/15 per year. Note: Access to your RRSP portfolio depends on the type of investments made and buyback conditions at the financial institution.
Lifelong Learning Plan (LLP)
Allows you to withdraw up to a maximum of $10,000 tax-free annually from your RRSP to cover tuition fees. The limit is $20,000 spread out over a four-year period. Reimbursement begins six years after the first withdrawal.
RRSP Loan
If you're low on liquidity, you may borrow to contribute to your RRSP. You can easily reimburse a portion of the loan with your income tax return.
You can also benefit from the Home Buyers' Plan without an RRSP. It's possible to borrow and use the amount for your RRSP as little as 90 days before applying under the Home Buyers' Plan.
Universal Life Insurance
A large array of investments available within the savings. Adjacent investment fund portion of this contract, including guaranteed investments, indexed accounts of Canadian, American and international funds, and bonds.
Excess RRSP Contribution
Anyone aged 18 through 71 may keep up to $2,000 in over-contributions in his or her RRSP.
Contribution for child's RRSP
Maximum $2,000 for life for people aged 18 and over. Since it consists of a donation from parents or grandparents, the donors obtain no tax benefits. The child alone can deduct the RRSP contribution from his or her taxable earnings.
Planned giving
There are several ways to plan a gift from your RRSP. One allows you to pay the insurance premium with the tax savings from the RRSP contribution, and, in certain cases, with the money you get back for certain tax credits resulting from the contribution. The premium qualifies you for a tax credit.
CPP Withdrawal or Quebec Pension Plan Withdrawal
A person aged between 60 and 65 years may receive an early retirement annuity as long as they've stopped working. It may be advantageous to receive this annuity at 60 years old, even if it represents roughly 70 percent of the annuity at 65 years.
RRIF (Registered Retirement Income Fund)
The result when an RRSP is converted into retirement income. It's what comes after an RRSP. Capital continues to accumulate tax-free. Only the annuity paid is taxable.