RRSP Tips
#11: What fees are charged on an RRSP?
You should be aware that there may be fees associated with your RRSP. Fees may be charged to your RRSP when you make a withdrawal, when you close your RRSP, or transfer the funds to a different RRSP issuer. These fees range from as low as $25 to as high as $100.
As well, most trusteed RRSPs may have an annual administration fee, and may have transaction fees. These are not tax deductible.
Mutual fund RRSPs charge management expenses, and you may also pay a front-end or back-end (deferred sales charge) load fee.
Before you decide to invest in any RRSP, find out what the annual costs are, and the fees for winding up the plan.
#12: RRSPs: make your contribution early
It is a great long-term advantage to contribute to an RRSP each year, especially if you are young and a long way from retirement. It is advisable to contribute early in the year so you start the tax-free compounding of earnings within the RRSP earlier. Also consider monthly payments into an RRSP throughout the year.
Once made, contributions within your deduction limit or to an excess of $2,000, can be carried forward indefinitely, without penalty, for deduction in future years.
This could be a substantial advantage if you make the deductions in years when you will be in a higher tax bracket.
For your RRSP contribution to be deductible for a particular tax year, the deadline is the 60th day of the following year. For the 2005 tax year, the deadline is March 1st, 2006.
#13: RRSP contributions do not have to be deducted in the year they were made
Your RRSP deduction limit is shown on your most recent Notice of Assessment, or you can get it be telephoning Canada Customs and Revenue Agency's TIPS line toll free at 1-800-267-6999.
Any RRSP contribution made within this deduction limit, plus an overcontribution of up to $2,000, can be carried forward without penalty and deducted in future years.
If you know you are going to be in a higher tax bracket in one or more future years, you may avoid far more tax by carrying contributions forward and deducting them in those years.
#14: What if you contribute too much to your RRSP?
An excess contribution is calculated as the total of all of your undeducted RRSP contributions, minus your current RRSP deduction limit and an allowable over-contribution of $2,000. Excess contributions are subject to a 1% per month penalty tax until they are withdrawn.
With prior Canada Customs and Revenue Agency approval, you can generally withdraw the excess without taxation.
Keep in mind, the penalty situations are complex. Consult the advice of a professional.
#15: A retiring allowance and your RRSP
A retiring allowance is a lump sum or sums of severance paid to you by your employer, at or after your termination, in recognition of your loss of employment. Accumulated sick leave credits paid also qualify.
The portion of a retiring allowance eligible for sheltering into your own RRSP can either be transferred directly (no income tax deducted), or up to 100% can be contributed in the year of receipt or within 60 days after that year.
The maximum that can be sheltered is:
- $2,000 for each full or partial calendar year of service with your current employer prior to 1996, plus
- an additional $1,500 for each full or partial calendar year prior to 1989, with your current employer, in which you were not a member of a pension plan or deferred profit sharing plan, or years for which your employer's contributions to such plans have not vested in you.
The transfer of a retiring allowance to an RRSP does not affect your normal RRSP deduction limit.
RRSP Tips : 1 - 5 | 6 - 10 | 16-19