RRSP deadline is 1st March this year and everybody is busy investing money in RRSPS to save up on taxes.
Yes, you save on taxes right away by claiming the RRSP deduction on your income but the big question is that does it help us in long term?
With RRSPs, the answer can be both yes or no and it depends on your situation. Retirement planning is now one of the most critical aspects of financial planning in Canada as more than 50% of retirees do not have enough in pensions today and are collecting Guaranteed Income Supplement.
The benefits of RRSP investing are as follows:
• They are a great investing tool if you are saving for your retirement and you do not have a Company pension plan
• RRSPs can be a great savings tool for younger people who are saving to buy a house. At the time of buying a house, funds can be withdrawn tax-free under the Home buyer’s plan
• RRSPs are great tax planning tool where you can invest in years when you have higher income and you withdraw in years when your income will be lower. So ideally you save money when your are paying tax in a higher tax bracket and pay tax on a lower tax bracket in later years
However, RRSPs do not serve as a great tax planning tool if you good pension plans from your employer as there is a good chance that you will end up paying taxes in higher tax bracket even when you retire.
So yes, the one size fits all policy does not work with RRSPs. You should discuss your RRSP investments with a tax planning expert before you take any step.
Call Softron Tax today at 905-273-4444 to discuss your tax planning needs.