RRSPS: for whom, and why?

February 2, 2019

Les REER: pour qui, pourquoi?

Photo: Unsplash

This text is part of a special booklet.

In the beginning of the year, the topic of RRSP remakes invariably surface, and for good reason. In 2014, a survey conducted by the Federation of the golden age of Quebec revealed that as a retiree, two had to return to the labour market due to a lack of liquidity. In addition, according to data collected by Statistics Canada, the savings rate of qu├ębec households barely crossing the 5% bar.

“This is very little compared to some Asian countries, for example, where this rate reaches 30, 40 or even 50% of the revenues,” said from the outset Jean – Philippe Joncas, tax specialist in tax and estate planning at Industrial Alliance. The reference body Issue Retirement reports that 45 % of workers aged 25 to 44 years unaware of the amount they would need to save to maintain their standard of living in retirement.

According to Statistics Canada, only six in ten Quebecers say they prepare for retirement through a savings plan or a pension plan offered by their employer. Certainly one of the more well-known, the RRSP generates, in 2016, the membership is about 24 % of the taxpayers of the Province of quebec. If, over the years, the number of contributors remains stable, what do we know specifically, the RRSP ?

How does an RRSP?

First, remember that the goal of the RRSP is to grow its assets to a tax shelter while benefiting (usually) a refund in consideration of the contributions paid. As long as the are placed in the system remain there, no tax is levied, that is to say, in principle, until at the time of retirement. At this stage, as the income of a person are often lower, the tax rate will be as well.

Who can contribute to an RRSP ? Any individual who earns income in Canada and who is 71 years old and under as of December 31st of the current year. Eligible revenues include : net income from employment, business, rent, certain disability benefits, alimony received. The fact of participating in a pension plan offered by his employer obviously has on the amount of money it is possible to pay into his RRSP.

Examples to support…

1. The sum paid into an RRSP is deducted from the total income of the taxpayer, which has the effect of reducing its taxable income. A person who earns $ 50,000, pays $ 5,000 in an RRSP and claiming the deduction pays tax as if it had won 45 000 $.

2. Jacques and Julie each invest a total of $ 45,000 in RRSPS. Jacques pays $ 1500 per year from the age of 25 years and will do so for 30 years. Julie waiting for the start of the quarantine and pays $ 3000 per year for 15 years. Assuming an annual yield of 6.5 %, James will have reached a value of 129 562 $ 55, so that the cumulative sum by Julie will be only 72 547 $.

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