RRSP Tips
#6: What are the advantages of contributing to a spousal RRSP?
Spousal RRSPs can achieve a shift of future income from a higher income spouse to a lower income spouse.
This can result in significant overall tax savings when the spouses cash in their RRSPs. It also may reduce the clawback of the Old Age Security pension, and allow the receiving spouse to qualify for the Pension Income Credit.
Provided no withdrawal is made from spousal plans for at least two calendar years after the year of your last contribution to any spousal plan, the amount withdrawn will be taxed in your spouse's name.
Look into spousal RRSPs -- you could reduce your taxes now and in the future.
#7: Can you borrow money to make an RRSP contribution?
Yes, you can borrow to make an RRSP contribution, but any interest you pay on the borrowed money will not be deductible for income tax purposes.
For this reason, it is generally better to use available cash rather than borrowing. If you have to borrow to make the contribution, try to repay the loan as soon as possible to minimize the amount of non-deductible interest.
Before borrowing, seek professional advice to ensure the benefits of making an RRSP contribution outweigh the costs of borrowing.
#8 what is a self-directed RRSP and what are its advantages?
A self-directed RRSP allows you to make a wider variety of investments. The most common self-directed RRSP investments are: shares and debts of public corporations, B.C. and Canada Savings Bonds, mutual funds, and home mortgages.
There is usually an annual administration fee for a self-directed RRSP. Such fees are no longer tax deductible. You should have at least $15,000 in assets in a self-directed RRSP to make it worthwhile paying an average fee.
If you're looking for more control and flexibility over your RRSP investments, look into a self-directed RRSP.
#9: When can you withdraw amounts from an RRSP and what are the consequences?
Provided the funds are not in a non-redeemable investment, you may withdraw any portion of your RRSP at any time.
In most circumstances, you will pay tax on the amount withdrawn from an RRSP as it is considered income in the year you make the withdrawal.
When you make your withdrawal, the financial institution will retain a small percentage as withholding tax. You'll get a credit for the tax withheld when you complete your return for the year. You may owe additional tax at that time, or be entitled to a refund of part or all of the tax withheld, depending on your marginal tax rate and other tax withheld for the year.
#10: Can you transfer your RRSP from one financial institution to another?
Yes you can, but be aware that in order to transfer an RRSP account without triggering any taxes, the transfer must be payable to the new institution in trust for you. Your new RRSP issuer arranges the transfer. Between self-directed plans, you can transfer existing investments "in kind." The trustee of your present RRSP may charge a nominal fee against your RRSP for the administrative work involved in the transfer.
To avoid having the funds stuck in the mail, thereby losing earnings, you may be able to arrange to pick up the cheque from your present institution and deliver it to the new institution. Or you can arrange for a courier.
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