A Retirement Savings Plan (RSP) is the best way to ensure your financial security once your retire.
A Retirement Savings Plan (RSP) is the best way to ensure your financial security once your retire. Even though government programs make up part of a retirement plan, they do not offer the level of income that many Canadian citizens look for when they retire. For more than sixty years, the tax structure. Around for over 60 years, the tax structure allows you to delay paying income tax on your deposits and earnings. The tax is applied only when you withdraw the money. Since most Canadians have a higher tax rate in their working years than retirement years, this often results in overall tax savings. To find out more information, contact the team at Equitable Life of Canada today.
Notable features of the plan:
Based on your total annual income, your income tax will be deducted by your employer. A deposit to your Registered Retirement Savings Plan will reduce your taxable income. This means you end up paying more income tax than what’s required during the year. When you file your tax return with the Canada Revenue Agency (CRA) and claim your Registered Retirement Savings Plan deduction, you will receive a refund for any overpaid income tax.
By looking at your most recent Notice of Assessment, you can identify your maximum contribution limit. This notice is issued by the Canada Revenue Agency (CRA). Based on your previous year’s earned income and the maximum retirement savings plan contribution limit, the maximum limit is 18%. Additionally, if you are a pension plan member, your pension adjustment will decrease the amount you can donate to your Registered Retirement Savings Plan. The unused contribution room can be carried forward to the subsequent years.
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Home Buyers’ Plan
As a first-time homebuyer, you have the opportunity to withdraw up to $35,000 tax-free in a calendar year to build or buy your first home. When you withdraw funds at the start of the second year, the repayment period begins, and you have up to fifteen years to pay the amount back. With home prices steadily rising, it is advisable not to tap into additional resources to increase your down payment. For more details, get in touch.
Life long Learning Plan
This plan allows you to go back to school or college. You can withdraw up to 20,000 dollars tax-free to cover your tuition expenses for you or your spouse. You have up to ten years to pay back the money.
Income splitting
In this plan, a spouse with a higher marginal tax rate can contribute to the spouse’s retirement savings plan with a lower income. Spousal splitting allows the spouse with a more significant income to reduce their taxable and net income.
Retirement Income Fund
Before you reach 71, you must change your Retirement Savings Plan to a Retirement Income Fund (RIF). It is an investment that allows you to get paid when you are retired. The money you placed in this fund over the years is now being paid back to you. This plan also provides a steady and continued growth in a tax-free environment.
Products that offer a Retirement Savings Plan
Equitable Life of Canada offers Retirement Savings Plans with a wide range of investment options to choose from. Our Guaranteed Investment Account is the perfect investment if you are looking for an investment with a guaranteed interest rate. The account offers affordable interest rates with flexible investment terms. Additionally, our Pivotal Select™ segregated fund product comprehensively selects investment funds from various Canadian fund managers. Whether you’re looking for equity, fixed income, or continued growth, our investment options can be personalized to suit your specific needs. These investments are not only versatile but also provide the protection you need, with the tax savings and benefits of a Retirement Savings Plan
Contributing to a Retirement Savings Plan
Retirement Savings Plan contributions can be made either the first sixty days of the following tax year or during the tax year. They can also be made monthly; you benefit from dollar-cost averaging when you contribute to the plan monthly. It is an investment strategy where deposits of a fixed-dollar amount are made at intervals scheduled regularly, ensuring your costs are averaged over the year when you make regular purchases. The benefit is two-fold, it helps reduces the impact of a rocky market, and two, your contributions over the year are compounded. You must make your retirement savings a prime concern as it can help you achieve the retirement income you desire.
Borrowing money to save money
Have you ever contemplated borrowing money to provide to your Retirement Savings Plan (RSP)?. Unlike credit card debt, Retirement Savings Plan loans, Investment loans and mortgages fall into the “good debt” category because they increase your net worth. With a Retirement Savings Plan loan, you can invest straight away and take advantage of long-term compounding growth, as well as a quick tax refund. The tax refund received from your Retirement Savings Plan is usually more than the interest you will pay on the loan.
Here is how the investment works. Kwame is a 40-year-old man with an income of $55,000. He takes a Retirement Savings Plan loan in the hopes of paying back the loan in one year. Every month for one year, he must pay $586/month at an interest rate of 4%. Kwame invested a total of $10,000 into his Retirement Savings Plan and would have only paid approximately $150 of interest on the loan, around costing up to $7,035 ($6,885 + $150).
Loan Amount
$10,000.00
Income tax reduction: (31.15% marginal tax rate)
$3,115.00
Cost of Investment:
$6,885.00
Monthly Payment*:
$586.26
*Assuming the rate of interest at 4% and the tax refund was quickly applied to the loan.
Fast-forward twenty-five years to age 65 and assuming an average annual return of 6%, Kwame’s $10,000 Retirement Savings Plan contribution that cost $7,035 is now worth $42,919!
Talk to our financial advisor at Equitable Life of Canada today and find out how an RSP can be included in your tailored financial plan.
Managing a Retirement Savings Plan tax refund
When the money is deposited into your bank account, you know the dilemma that comes if you have ever received a tax refund. The reaction, in the beginning, is to spend it on yourself, and why not! You deserve to treat yourself for having worked hard all year. As you think about the endless possibilities, you’re put back to reality with mails on credit card payment, mortgage etc. Below-mentioned is top five reasons you might want to consider for that tax refund:
If you decide that you want to pay less tax, below-mentioned is some steps that you can conform to reduce your taxes.
If you are unsure about what to do with that refund, talk to our expert financial advisor at Equitable Life of Canada today about the best options that suit your needs.
A Retirement Savings Plan (RSP) is just as relevant now as it was over sixty years ago
As popular as the Tax-Free Savings account is, the Retirement Savings Plan (RSP) does not invoke the same feeling it once did. The way you should go about your savings should be dependent on what you want to save.
A Retirement Savings Plan from Equitable Life of Canada can fund your goal of further education, retirement, or owning your dream home. A Retirement Savings Plan can even help you to save money for your future.
Remember when I mentioned earlier that a Retirement Savings Plan could force you to save money? Taking out money from your Retirement Savings Plan when it does not associate with education or homeownership will cost you, as the amount becomes taxable and is added to your annual income. Consider it as a security blanket for when you make an impulse decision to spend your savings.
Oh, and speaking of those built-in guarantees? Equitable Life of Canada offers an investment plan that provides guarantee classes that allow you to select the level of safety that suits your financial and personal needs. The guarantee protects part of the money you invest (75% to 100%). So even if the key investment loses money, you are guaranteed to get back some or all your principal investment.
Find out how to build an Equitable Life Retirement Savings Plan into your overall financial plan. Get in touch with our financial advisor at Equitable Life of Canada today.
Call 1 844-542-4678 to speak to our advisors.
