Quick summary of some frequently asked questions I get about RRSP planning.

1. RRSP Facts and Info: Answers to common questions
What is an RRSP?
RRSP stands for Registered Retirement Savings Plan. An RRSP is a type of
account that can hold various types of investments, and has the following
three characteristics:
• Deposits are deductible against your otherwise taxable income
• Investments are sheltered against yearly taxation
• Is taxable on withdrawal, allowing you to plan your income later in
life on a tax-efficient basis
How much can I contribute?
18% of your previous year’s earned income, to a yearly maximum. The
maximum for 2010 is $22,000. (I.E. if you earned $100,000, you created
$18,000 of new contribution room. If you earned $200,000 in 2009 you are
limited to the 2010 maximum of $22,000, rather than 18% of the total.)
Unused room can be carried forward to future years. The CRA lets you
know your total remaining room via your “Notice Of Assessment” each
year in late spring/early summer.
When is the deadline?
March 1, 2010. You have the first 60 days of each year to make
contributions that can be used to reduce your previous year’s tax bill, or
carry forward your deductions to future years.
What are my options if I’m out of RRSP contribution room?
• Pay down any remaining consumer debt
• Use a Tax free savings account (you should have one anyways)
• Invest in Tax-efficient investment vehicles, such as Corporate Class
mutual funds
• Use an investment loan and deduct the interest
• Use a tax-sheltered life insurance policy
How do I know it’s a good time to invest?
It is virtually impossible to reliably predict short-term market movements.
The best way to invest is to make regular, fixed dollar amount deposits to
a diversified basket of investments that suits your needs and risk profile.
This means you are buying more of the asset when prices are low, and
buying less when the price is high.
Can I take out an RRSP loan?
Yes- most institutions (including ours) provide great rates on RRSP loans.
Adam Stephanson
adam.stephanson@f55f.com
adam-stephanson.com
#1200 - 1111 W. Georgia St.
(604)685-6521 ext. 343 Fax: 685-9666

2. Should I use a Tax-Free Savings Account (TFSA) instead?
Perhaps, but most people will benefit from using both. Generally
speaking, if you will be in a higher tax bracket when you plan to withdraw
the money in the future, the TFSA is preferable. If you are in a higher tax
bracket now than when you plan to withdraw the money, first take
advantage of the tax deduction you get by using your RRSP.
What’s the main difference between an RRSP and a TFSA?
Because deposits to an RRSP are tax-deductible you are in essence
investing gross earnings. A TFSA offers the same sheltered nature, but you
are investing net earnings, or money that has already been subject to
income tax.
RRSP: Earn > Invest > Pay tax on withdrawal
TFSA: Earn > pay tax > invest = tax free on withdrawal
Is it better to pay down my Mortgage?
It depends on several factors, including the terms of your mortgage and
interest rate you pay. A common strategy is to make your RRSP
contribution first, and then use the tax savings (refund) to pay down other
debt. (Note: this is truer for Mortgages than it is for higher-interest
consumer debt such as credit cards, etc.)
How can I feel better about my financial planning?
Be mindful of what you’re doing. Consult with a professional to determine
your appropriate risk profile and then stick to it. Don’t agonize each day
about the ups and downs of the market- far better to make a long-term
plan and then implement it over time on a consistent basis. Try to reduce
(remove) emotional investment decisions from your financial planning
whenever possible, and do not “wing it”. How you invest is as important
as what you invest in.
Can I use my RRSP to make a down payment on a home?
Yes, under certain conditions. Under the Home Buyers’ Plan you can
withdraw up to $25,000 from your RRSP to use as a down payment
provided you haven’t owned a home in the current year or any of the
past four years. To avoid being taxed on this withdrawal you must repay
the loan by making RRSP contributions over fifteen years, starting the
second year after the year of withdrawal.
Your question here:
This is by no means a comprehensive list, and I am sure you have
questions of your own. I invite you to contact me at your earliest
convenience to make sure you are moving in the right direction with your
financial planning.
Adam Stephanson
adam.stephanson@f55f.com
adam-stephanson.com
#1200 - 1111 W. Georgia St.
(604)685-6521 ext. 343 Fax: 685-9666