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May 17, 2008       
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Five RRSP Tips
It's time to focus on financial security as it pertains to your retirement! No matter what your age or situation, it's wise to examine all your options.

Here are five general hot tips that, depending on market conditions and personal situation, can be used to increase RRSP savings. Consult your representative to see if these tips are worthwhile for you.

Tip #1: Contributing to an RRSP can be a better option than paying down your mortgage.
 


With the Canadian real estate market so hot and interest rates so low, you might think paying down your mortgage makes more sense than contributing to an RRSP.

However, the potential growth and tax-deferred savings of an RRSP may outweigh the financial advantages of paying down a mortgage, especially if you use the tax savings from your contributions to pay down your mortgage.

Tip #2: Contribute early and regularly to your RRSP.
 


Investing early affords you the opportunity to take advantage of the power of compounding, which means your contributions have a greater chance to grow. You can make either an annual RRSP contribution in January of the current tax year or smaller, regular contributions during the year using a monthly automatic investment plan.

The earlier your money is in your RRSP, the sooner you can enjoy tax-sheltered, compound growth.


Tip #3: In general, the younger you are, the less sense it makes to borrow from your RRSP for a down payment on a home.
 


The Home Buyers' Plan (HBP) allows you to withdraw $20,000 tax free from your RRSP for a down payment-with some specific payback rules.

The general rule is that the younger you are, the less sense it makes to borrow from your RRSP for a down payment. Why? As you can see from the following chart, if you were to withdraw $40,000 from your RRSPs, you would have $176,000 (at a 7% interest rate) less at retirement. It's something to think about seriously!


Tip #4: Contributions to a Spousal RRSP
 
If you are in a higher tax bracket than your spouse, consider contributing to a Spousal RRSP. The major benefit here is that you will get to split your income when it's time to collapse the RRSP. In doing so, you will be able to reduce taxes because your spouse is in a lower income tax bracket.

Tip #5: Interest-bearing investments within your RRSP reduce your tax bill
 
Guaranteed income certificates (GICs), bonds and treasury bills all earn interest. If you hold these types of investments inside your RRSP and investments that earn dividends or capital gains outside your RRSP, you'll reduce your tax bill.

Lastly, remember that one of the best ways to save for retirement is with a registered retirement savings plan (RRSP). RRSPs let you defer tax on money set aside specifically for retirement; contribution limits are based on individual income, and contributions are tax deductible. You pay tax when you withdraw funds from the RRSP

helpful rrsp ARTICLES

 
• Are RRSPs Only for Retirement  
• Borrowing for an RRSP Contribution  
• Five RRSP Tips for Canadians  
• Split income now to pay less tax in retirement  
• When is the Right Time to Convert Your RRSP into a RRIF  

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