A YOUNGER PERSON’S GUIDE TO RRSPs

By Cass Schneider

A YOUNGER PERSON’S GUIDE TO RRSPs

 Authors note:  This is Part 1 of a series on basic money management for younger people. 

 

People my age often put off saving until they are making more money, out of debt or more confident in their job prospects. 

As a result, they often don’t realize what they’re missing.  It goes well beyond the financial aspects involved.

 Over the next few issues, I’ll be discussing some money management basics and how they can change your future for the better. 

 

A Registered Retirement Savings plan (RRSP) is great place to start.  You can save money for your retirement but there is so much more that you can do with it. 

  1. You save tax money for every contribution

Your RRSP contributions can be claimed as a tax deduction so that you get a bigger tax return. 

eg. You save $1000 in an RSP. You get back the tax you’d normally pay on that money.  So, if you’re in a 40% tax bracket, you get back an additional $400.

  1. Tax free growth

While the money stays in your RRSP, it grows tax free.  This allows your savings to compound faster because you’re not paying tax on your earnings every year. 

  1. Get a “paycheque” when you’re retired

When you retire your RRSP can be transferred to a different kind of account (RRIF) which will pay you regularly so you can continue to receive monthly income. 

  1. Use a Spousal RRSP for even greater savings

Make more money than your spouse?  It can be beneficial to split your income with a Spousal RRSP so you can both stay in lower tax brackets.  Higher income earners get the bigger tax savings now while you both pay lower tax later. 

 

  1. RRSPs can fund your first home or secondary education.

You can use up to $35,000 out of your RRSP for the down payment of your first house.  There’s no need to pay tax on the money as long as you pay it back to the RSP within 15 years. (1/15th every year).

In BC, you qualify for an education tax credit on certain education expenses. 

That can offset a portion of the tax you’ll pay when you withdraw the RRSP. 

There are significant benefits to start saving when you are young that I haven’t gotten into here.  But if you’re just getting going, as little as $25/m will help set you on the right path.  

 

Don’t Miss Our

Older Posts

BETTER HEALTH THROUGH BETTER BREATH

BETTER HEALTH THROUGH BETTER BREATH

Here’s some practical advice that some of our team members have practiced over the years.   It is even more practical and important today than ever.  There are simple breathing techniques, which if done with some regularity have been proven to...

SEAN SCHNEIDER on ONE THING THE BUDGET GOT RIGHT

SEAN SCHNEIDER on ONE THING THE BUDGET GOT RIGHT

One thing the Canadian government seemed to get right in this year’s election orientated budget was the increase in RSP allowance first time home buyers are eligible to withdraw for a down payment. Too many hard-working younger generation Canadians are finding...

A CHANGE IN THE COURSE OF HUMAN HISTORY?

A CHANGE IN THE COURSE OF HUMAN HISTORY?

A new satellite cell phone company may be on the cusp of changing human history.  By deploying a new approach using nanosatellites, Ubiquitlink appears poised over the next few years to connect the planet’s whole off-grid population to the Internet. Nanosatellites are...

The Coming Canadian Debt Calamity?

You may be in for a shock over the next few years as the well-meaning though overly generous Federal and Provincial government spending and policies come home to roost.   Canadians are borrowing money at a record rate bringing with it rapid inflation.  We are nearing...

FIRST-TIME HOME BUYERS OPTIONS

FIRST-TIME HOME BUYERS OPTIONS

Home prices are finally starting to come down throughout BC, largely due to interest rate rises. And assuming we see another couple of years of rate rises, we should see prices recede accordingly to a level that is hopefully sane once again.  That means that for...

PAY YOURSELF FIRST

PAY YOURSELF FIRST

Do you want to know the secret to both financial success and a happy marriage along the way?   The first key is to make sure you’re paying yourself first. This can be a real problem for people that are either not employed on a regular basis or are...

CORPORATE OWNED LIFE INSURANCE — PROBATE TAX ISSUES?

CORPORATE OWNED LIFE INSURANCE — PROBATE TAX ISSUES?

The tax rules governing the valuation of corporate-owned life insurance, for purposesof determining the fair market value (FMV) of private company shares on a shareholder’s death1, are well established. Subsection 70(5.3) of the Income Tax Act (the Act) provides that...

About The Author

Schneider Content Team
Our research advisory team that helps keep us ahead so we can do the same for you.