本文发表在 rolia.net 枫下论坛5 Great Tips For Your RRSP
By Gordon Powers
Over the next couple of months, just about everybody you meet will be trying to sell you an RRSP. Oddly enough, unlike the cellular companies, they're actually touting something that most people really need – but nobody seems to be listening.
Last year, the number of Canadians who contributed to an RRSP, as well as the amount of their contributions, dropped sharply for the second straight year, according to recent Statistics Canada data. Just under six million Canadians, 4% fewer than a year earlier, added to their RRSP during the 2002 tax year, they report.
It's not hard to find reasons for not investing in an RRSP: buying a home, raising a family, or just simple procrastination. Sadly, as you grow older, it also becomes that much harder to make up for the lost years when you didn't invest. Here’s what you need to do now to get ahead.
1. Start early; invest often.
Thanks to compound interest, the sooner you start saving for retirement, the easier it is to reach your goals. Suppose you think you'll need $500,000 by age 65 to retire. If you started at 25 and averaged an 8-per-cent return, you'd have to save $1,787 each year. If you wait to start saving until 35, you'd have to put side $4,087 a year to reach your goal. Begin at 45 and you'll need $10,117 a year.
Let's look at it another way. Say your neighbour started contributing $1,000 a year to her RRSP when she turned 21. Then, at 30, she quit. You then start at 30 with $1,000 a year and contribute until you turn 60. Even though you've put in three times as much money ($30,000, compared with her $10,000), her fund will be larger – all because of compounding.
2. Invest the maximum you can whenever possible.
In a perfect financial world, we would all invest as much as we could in an RRSP. Currently, you can contribute up to 18% of your previous year's earned income to a maximum of $14,500 (less for members of pension plans and deferred profit sharing plans depending on the value of their benefit in the previous year). Most actuaries agree that you'll need something like 60 to 70% of what you were making before you left work to enjoy a healthy retirement. That yearly 18% government guideline is designed to provide that - assuming reasonable returns and not too much inflation.
If you don't have the money to make a maximum contribution, consider borrowing. If you pay off the loan within the year, the growth on your money and your tax refund should offset much of the interest cost. Most financial institutions will cut you a good deal on the loan if you make your deposit with them.
You can boost what's in your RRSP a bit by using the $2,000 lifetime overcontribution limit. Don't go any higher. Anything over $2,000 will be hit with a penalty of 1% a month. Originally designed to give bookkeepers some leeway, many people now use this wrinkle as a supplementary contribution. You won't get a deduction up front but the money will grow tax-free over time.
3. Shift forward and contribute regularly.
Do you wait for the RRSP season to make your contribution? Don't. Shifting forward a year can mean a big difference in your overall RRSP savings. Say it's February 29, 2004, and you've just made your 2003 contribution. Can you look after next year’s contribution at the same time? By doing so – and maintaining that schedule every year – you'll add some real value to your plan.
Sticking with that 8% growth number and a $5,000 annual contribution, your plan would be worth $365,530 after 25 years of contributing at the end of each year. A start-of-the-year strategy over the same time will produce a nest egg of $394,772. If you make your RRSP contribution at the beginning of the tax year, you can also have the amount your employer deducts off your pay cheque reduced to take this into account. You won't get a refund later on but you could use that money to accumulate next year's contribution earlier.
4. Time your deductions.
If you're pretty sure your income will rise, consider making an RRSP contribution today but save the tax receipt for later. There's nothing in the rules that say you have to take the deduction in the year that you actually contribute. This buy-now-deduct-later strategy will work for salespeople whose income fluctuates dramatically from year to year, those who are returning from a sabbatical or women on maternity leave who are heading back to work.
It's also another way for people in their early 60s to fight the so-called seniors’ tax, making contributions anyway and then saving the deduction for future years when the OAS clawback may be an issue.
Similarly, individuals whose best-earning years may still be ahead of them – young athletes, computer experts, or novice doctors, dentists and lawyers, for instance – may want to contribute now anyway but wait several years before taking the deduction, when they're likely in a higher tax bracket.
5. Open up a spousal RRSP.
Income splitting – shifting income to the spouse with the lowest tax rate – is a proven tax-savings strategy. If you're married – formally or common law – be sure to set up a spousal RRSP from the beginning. By putting all or part of your RRSP contribution in your spouse's name, you take the deduction but the money and its earnings are taxed in your spouse's hands at, one hopes, a lower rate. This has no impact on your partner's own RRSP contributions.
A spousal RRSP makes sense in a variety of cases. But its main benefit lies in balancing retirement income between the two of you. A family earning $50,000 a year in retirement will be much better off after tax if each spouse earns $25,000 than if one earns more and is in a higher tax bracket. This is another way to help avoid the clawback of retirement benefits because the equation is based on individual, not family, income.
If your spouse is younger than you, you can also continue contributing and deferring tax even after you reach 69 – the age when you're supposed to start withdrawing some of your RRSP savings. But you'll need some employment income or unused RRSP contribution room from previous years on which to base your contribution.更多精彩文章及讨论，请光临枫下论坛 rolia.net
By Gordon Powers
Over the next couple of months, just about everybody you meet will be trying to sell you an RRSP. Oddly enough, unlike the cellular companies, they're actually touting something that most people really need – but nobody seems to be listening.
Last year, the number of Canadians who contributed to an RRSP, as well as the amount of their contributions, dropped sharply for the second straight year, according to recent Statistics Canada data. Just under six million Canadians, 4% fewer than a year earlier, added to their RRSP during the 2002 tax year, they report.
It's not hard to find reasons for not investing in an RRSP: buying a home, raising a family, or just simple procrastination. Sadly, as you grow older, it also becomes that much harder to make up for the lost years when you didn't invest. Here’s what you need to do now to get ahead.
1. Start early; invest often.
Thanks to compound interest, the sooner you start saving for retirement, the easier it is to reach your goals. Suppose you think you'll need $500,000 by age 65 to retire. If you started at 25 and averaged an 8-per-cent return, you'd have to save $1,787 each year. If you wait to start saving until 35, you'd have to put side $4,087 a year to reach your goal. Begin at 45 and you'll need $10,117 a year.
Let's look at it another way. Say your neighbour started contributing $1,000 a year to her RRSP when she turned 21. Then, at 30, she quit. You then start at 30 with $1,000 a year and contribute until you turn 60. Even though you've put in three times as much money ($30,000, compared with her $10,000), her fund will be larger – all because of compounding.
2. Invest the maximum you can whenever possible.
In a perfect financial world, we would all invest as much as we could in an RRSP. Currently, you can contribute up to 18% of your previous year's earned income to a maximum of $14,500 (less for members of pension plans and deferred profit sharing plans depending on the value of their benefit in the previous year). Most actuaries agree that you'll need something like 60 to 70% of what you were making before you left work to enjoy a healthy retirement. That yearly 18% government guideline is designed to provide that - assuming reasonable returns and not too much inflation.
If you don't have the money to make a maximum contribution, consider borrowing. If you pay off the loan within the year, the growth on your money and your tax refund should offset much of the interest cost. Most financial institutions will cut you a good deal on the loan if you make your deposit with them.
You can boost what's in your RRSP a bit by using the $2,000 lifetime overcontribution limit. Don't go any higher. Anything over $2,000 will be hit with a penalty of 1% a month. Originally designed to give bookkeepers some leeway, many people now use this wrinkle as a supplementary contribution. You won't get a deduction up front but the money will grow tax-free over time.
3. Shift forward and contribute regularly.
Do you wait for the RRSP season to make your contribution? Don't. Shifting forward a year can mean a big difference in your overall RRSP savings. Say it's February 29, 2004, and you've just made your 2003 contribution. Can you look after next year’s contribution at the same time? By doing so – and maintaining that schedule every year – you'll add some real value to your plan.
Sticking with that 8% growth number and a $5,000 annual contribution, your plan would be worth $365,530 after 25 years of contributing at the end of each year. A start-of-the-year strategy over the same time will produce a nest egg of $394,772. If you make your RRSP contribution at the beginning of the tax year, you can also have the amount your employer deducts off your pay cheque reduced to take this into account. You won't get a refund later on but you could use that money to accumulate next year's contribution earlier.
4. Time your deductions.
If you're pretty sure your income will rise, consider making an RRSP contribution today but save the tax receipt for later. There's nothing in the rules that say you have to take the deduction in the year that you actually contribute. This buy-now-deduct-later strategy will work for salespeople whose income fluctuates dramatically from year to year, those who are returning from a sabbatical or women on maternity leave who are heading back to work.
It's also another way for people in their early 60s to fight the so-called seniors’ tax, making contributions anyway and then saving the deduction for future years when the OAS clawback may be an issue.
Similarly, individuals whose best-earning years may still be ahead of them – young athletes, computer experts, or novice doctors, dentists and lawyers, for instance – may want to contribute now anyway but wait several years before taking the deduction, when they're likely in a higher tax bracket.
5. Open up a spousal RRSP.
Income splitting – shifting income to the spouse with the lowest tax rate – is a proven tax-savings strategy. If you're married – formally or common law – be sure to set up a spousal RRSP from the beginning. By putting all or part of your RRSP contribution in your spouse's name, you take the deduction but the money and its earnings are taxed in your spouse's hands at, one hopes, a lower rate. This has no impact on your partner's own RRSP contributions.
A spousal RRSP makes sense in a variety of cases. But its main benefit lies in balancing retirement income between the two of you. A family earning $50,000 a year in retirement will be much better off after tax if each spouse earns $25,000 than if one earns more and is in a higher tax bracket. This is another way to help avoid the clawback of retirement benefits because the equation is based on individual, not family, income.
If your spouse is younger than you, you can also continue contributing and deferring tax even after you reach 69 – the age when you're supposed to start withdrawing some of your RRSP savings. But you'll need some employment income or unused RRSP contribution room from previous years on which to base your contribution.更多精彩文章及讨论，请光临枫下论坛 rolia.net