Registered Retirement Savings Plan (RRSP)

DEADLINE FOR 2009 CONTRIBUTION: MARCH 1, 2010

RRSP

A Registered Retirement Savings Plan is an investment account designed for saving toward your retirement years. As a Canadian government regulated program, RRSPs have special tax benefits. Your annual RRSP contribution may greatly reduce the amount of income tax you pay in that year and the money you put away can have years of tax-deferred growth potential. With an RRSP, tax is paid only on the amount of funds withdrawn.

Benefits of an RRSP:

• reduces your income tax payable for a given year
• provides income for your retirement
• provides income during times when less is earned (ie. maternity, unemployment)
• can be used to purchase your first home or to pursue your education

Who can invest in an RRSP and when?

All taxpayers with earned or eligible income can invest in RRSPs up to the end of the year in which they reach age 71. Contributions to the RRSP can be made at any time during the year for which you wish to claim the deduction, and within the first 60 days of the following year. It is worth noting that it is to your benefit to make regular deposits to your RRSP during the year rather than wait until the deadline, since money deposited will be earning interest sooner, and, for a longer period of time.

Maximum contribution

The government determines the current and future dollar amounts of the maximum that can be contributed to your RRSP each year. Contribution limits are shown on the latest Notice of Assessment that you receive after your tax return is processed for the previous year. If you choose not to make your maximum allowable contribution in a given year, it will be automatically forwarded to the next year. The maximum new contribution limit for 2009 is $21,000.

Your RRSP contribution limit for the current year is the lower of:

• 18% of your earned income from the previous year, or
• the maximum annual contribution limit for the taxation year, or
• the remaining limit after any company sponsored pension plan contributions

For those participating in a Pension Plan or Deferred Profit-Sharing Plan, the limit is less the Pension Adjustment (PA).

What is a "PA"?  

The "PA" shown in your T4 slip stands for Pension Adjustment. The Canada Revenue Agency (CRA) will use the "PA" number to calculate the amount you can contribute tax-free to an RRSP, and will send you a notice of assessment informing you of your contribution limit. Your employer can tell you how your "PA" was calculated.

What is an earned income?

Earned income includes salary, wages, alimony received, and rental income. Earned income does not include investment income.

Can I take out money from my RRSP?

Yes you can, however, the amount withdrawn will be subject to withholding taxes.

Amount of RRSP withdrawal                         Withholding tax percentage

Up to $5,000                                                       10%

$5,001 to $15,000                                               20%

More than $15,000                                              30%

Remember that according to CRA rules & regulations, all RRSP withdrawals are taxable. If you have any questions, please visit www.cra.gc.ca.

Unlimited Deposit Insurance Coverage!

Each RRSP contract is completely insured for its full amount by the Deposit Insurance of Ontario (DICO) with no maximum limit. Deposit Insurance is backed by provincial legislation and is part of a comprehensive protection program in all Ontario credit unions.

What investment options are available in our Credit Union?

Our Credit Union offers:

• A Variable Rate option where the interest rate fluctuates with the market.
• Fixed Rate Term Deposits, for terms of 1 to 5 years with a guaranteed rate of return, compounded annually.
• Guaranteed Investment Certificates (GICs) with a guaranteed higher rate of return, compounded annually, for terms of 1 to 5 years.
• Step-Up GICs that offer a progressively higher rate of return for each year, compounded annually, for terms of 3 or 5 years.
• Mutual Funds Investments are available to all members of our Credit Union through Credential Asset Management. For more information, please contact our Mutual Fund Department.

Death of the Plan Holder

In the event of death, RRSP proceeds can be distributed to a beneficiary you name or to your estate. The manner of distribution can be specified on the RRSP form or in your will.

Separation or Divorce

In the event of separation or divorce, RRSP funds can be transferred from one party to the other party without the payment of tax providing that:

• There is a written separation agreement or a court order, or,
• The affected parties are living apart when property and asset matters are settled.

Home Buyers’ Plan

The RRSP Home Buyers’ Plan allows you to borrow a maximum of $25,000 from your RRSP to buy your first home. You don’t have to pay tax on the money you withdraw to use as part (or all) of your down payment, nor do you have to pay interest on the money while it is outside your plan. The key requirement is that you repay what you have taken out of your RRSP to buy a home at a minimum amount each year represented by one-fifteenth of the amount originally borrowed.

The Lifelong Learning Plan (LLP)

The LLP allows you to withdraw up to $20,000 from your RRSP to pay for your own or your spouse’s education.

Can I transfer money in from another financial institution or workplace?

Transferring your RRSP or Pension from another financial institution or workplace is easy! We can even help you set up a regular deposit program to allow you to make regular contributions throughout the year. All you have to do is to visit your nearest Credit Union branch and bring your RRSP statement from another institution, or, a pension package from an employer. Our Credit Union staff will gladly take care of the rest.

Pay Yourself First

It is to your benefit to make regular deposits to your RRSP during the year, rather than wait until the deadline, since your money will be earning interest sooner and for a longer period of time. Save regularly and don’t wait until the final deadline to make your contribution. Give your money an extra year to earn tax-sheltered interest, and pay yourself first!

Registered Retirement Income Fund (RRIF)

RRIF

A Registered Retirement Income Fund is a continuation of an RRSP. The main difference is, instead of contributing to your RRSP plan, a RRIF provides you with an orderly payout of your RRSP funds to supplement your income, or, for retirement income purposes. A minimum amount must be withdrawn each year.

When do I have to convert my RRSP to a RRIF?

According to the Income Tax Act, you must convert any RRSP that you have into a CRA approved product no later than December 31 in the year that you turn 71. A RRIF is such a qualified investment product. You can arrange for a RRIF at any time during your life, however, once it is arranged, the specific funds in that RRIF cannot be put back into an RRSP.

When do I have to start receiving payments from a RRIF and how are these payments calculated?

You must receive your first minimum payment before December 31 of the next year. The amount of your annual minimum payment is based on your or your spouse’s age and the value of the RRIF.

In our Credit Union, depending on your financial needs, RRIF payments can be received annually, semi-annually, quarterly, monthly, biweekly, or weekly.

How are my RRIF payments taxed?

All RRIF payments are subject to income tax in the year that income is received. At the beginning of the following year, our Credit Union will send you a tax slip for all RRIF withdrawals.

You can always withdraw any amount in excess of the minimum payments; however, payments received are subject to withholding tax at the following percentages:

• 10% -payment is less than $5,000;
• 20%-payment is more than $5,000 but less than $15,000
• 30%-payment is more than $15,000.

No withholding tax is required on minimum payments.

What can I do with my locked-in RRSP?

Your locked-in RRSP can be converted to a LIF (Life Income Fund). This plan is similar to a RRIF and can provide you with the same tax deferral benefits. For more information, please contact our Mutual Fund Department.

Unlimited Deposit Insurance Coverage!

Each RRIF contract is completely insured for its full amount by the Deposit Insurance of Ontario (DICO) with no maximum limit. Deposit Insurance is backed by provincial legislation and is part of a comprehensive protection program in all Ontario credit unions.

What investment options are available in our Credit Union?

Our Credit Union offers:

• A Variable Rate option where the interest rate fluctuates with the market.
• Fixed Rate Term Deposits, for terms of 1 to 5 years with a guaranteed rate of return, compounded annually.
• Guaranteed Investment Certificates (GICs) with a guaranteed higher rate of return, compounded annually, for terms of 1 to 5 years.
• Step-Up GICs that offer a progressively higher rate of return for each year, compounded annually, for terms of 3 or 5 years.
• Mutual Funds Investments are available to all members of our Credit Union through Credential Asset Management. For more information, please contact our Mutual Fund Department.

Death of the Plan Holder

In the event of death, the RRIF can be paid in full to your spouse, designated beneficiary or to your estate. Your RRIF can also be transferred to the registered plans of your spouse or dependants. You can also designate that your RRIF payments continue to be paid to your spouse.

Can I transfer my RRIF from other institution?

Tax-Free Savings Account (TFSA)

Canadians need to save for many different purposes over their lifetimes. Reducing taxes on savings can help.

That's why the Government has introduced a new Tax-Free Savings Account (TFSA). It’s the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).

The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation.

Canadians from all income levels and all walks of life can benefit. Click here for more Information