(NC) Many of us use Registered Retirement Savings Plans (RRSPs) because it helps us save for the future while reducing our annual taxable income. Whether you have one set up or are thinking about opening one, Lisa Gittens, tax expert from H&R Block, shares some things to know.
Beat the deadline. You can contribute to your RRSP every year, but there’s a deadline you need to meet and it’s always 60 days after the end of the year. The money you put in will be deducted from your overall taxable income from that year, so make sure you contribute on time – by March 2this year.
Know your limit. Your contribution limit is based on several things, including your earned income for the past year and any unused contribution room from previous years Check your Notice of Assessment from last year to see how much contribution room you have. You can exceed your RRSP contribution limit by up to $2,000 without being subject to a penalty.
Check your contribution room. RRSP contributions can be carried forward if you think you might be in a higher tax bracket in future years. “This will help maximize the tax deduction and reduce your tax bill later,” explains Gittens.
Withdrawals are considered income. Money withdrawn from an RRSP is considered income in the tax year it was received, so you’ll have to add it to the other income you earned during the year on your return. Depending on the amount, 10 to 30 per cent is taxed at the source, but that’s usually not enough to cover the total tax you would owe when it’s declared as part of your income, so keep a few extra dollars handy to cover this, should it arise.
“Remember, RRSPs have no minimum contribution and every little bit helps,” Gittens adds.