Retirement looks different to everyone. Maybe you’ll want to volunteer, enjoy more time with family or finally pursue your passion project. You may not know what you want to do, but learning how to save now can help you reach your goals, no matter what they are.
According to a recent TD survey, despite 70 per cent of Canadians feeling confident about managing their finances, six in 10 (59 per cent) are worried about the effect of COVID-19 on their savings and retirement plans.
Fortunately, the months leading up to the RRSP contribution deadline for the 2020 tax year are a great time to review your finances. So, whether you’re near retirement, want to ensure you’re on track or simply want to get started, Jeet Dhillon, Vice President and Senior Portfolio Manager with TD Wealth, answers common questions about RRSPs:
What is an RRSP?
An RRSP is a savings vehicle designed to help people save for retirement. When you contribute money to an RRSP, your funds are “tax-advantaged,” meaning that they’re exempt from being taxed in the year you make the contribution. The funds held and invested within the RRSP can then grow tax deferred if the money remains within the RRSP, until withdrawn.
How much can I contribute?
Understanding how much to contribute can be confusing. Every year, your contribution is subject to a maximum amount, known as your RRSP contribution or deduction limit. Each Canadian has a personal RRSP contribution limit of up to 18 per cent of their earned income, up to a maximum of $27,230 for 2020, plus any unused contribution room from past years.
However, those belonging and contributing to an employer’s pension plan may have reduced limits for their RRSP. It’s important to keep track of all your contributions to ensure you stay within your annual limit. Speak with a professional tax advisor for specific guidance.
How can I withdraw?
Since RRSPs are designed for long-term saving, withdrawals are subject to tax. There are some exceptions, like the RSP Home Buyers’ Plan, which are subject to eligibility and conditions. Speak with an advisor or financial advisor before withdrawing any funds to ensure you understand the implications.