The RRSP season is in its prime and the deadline for RRSP contributions for the 2015 Tax Year is February 29th, 2016. It’s a leap year and the first 60 days of the year end on Feb 29th.
Every year thousands of people invest in RSSP’s and a lot of them just do it because they have been advised by their friends or sales managers selling RSSPs.
So is RRSP your friend or foe?
RRSP as the name suggests can be an exceptional retirement saving tool for but only for people who need it. One man’s garbage can be another man’s treasure.
RRSP is not a tax free or a tax saving scheme. It is a tax deferral plan in which you save on taxes when you contribute and you end up paying taxes at a later date when you withdraw money from the RRSP accounts. Ideally an individual should be having a higher taxable income and should fall in higher tax bracket during the contributing(working) years and the individual should be in a lower tax bracket during the withdrawal(retirement) years. Lets solve this puzzle.
RRSP is your friend if:
- You make more than $44,000 Approx. (Lowest Tax Bracket) in Ontario and there will be a time in future (Retirement Years) when you will be making less than $44,000 annually.
- You have no pension plan from your employer and you want/have to save something for the retirement years. These savings will be strictly for retirement purposes.
RRSP is your foe if:
- Your income is less than $12,000 dollars and you are just trying to save some money.
- You have generous pension plans (Unionized Workers) and chances are that your tax bracket will not change when you retire.
- You have an investment portfolio otherwise which will generate income in your retirement years and as a result your tax bracket will not change
- You are trying to save money for an emergency fund and you may need this money any time in the future. A TFSA account should be used for savings and investments that are not long term and not for the purpose of retirement.
Retirement Planning is very important and a general habit of saving money goes a long way in life but RRSP may or may not be the answer. We at Softron Tax always tailor our advise according to the needs of the client. One size fits all policy does not work well with personal finances.
So visit the nearest Softron Location today and we will help you decide whether RRSP is your friend or a foe.