RRSP tips for the retired and semi-retired
Just because you're retired or about to retire, doesn't mean you can't still benefit for your Retirement Savings Plan (RSP). In fact, Myron Knodel, CA and Manager, Advanced Financial Planning Support at Investors Group recommends that retirees and pre-retirees make sure they haven't overlooked any possible RSP opportunities before they turn 71 and have to mature their plans.
Here are Knodel's top three strategies on how to squeeze the most out of your plan to age 71 and even beyond.
1. Contribute as long as you can
Whether you're officially retired or not, you can continue contributing to your RSP right up to the end of the year in which you turn 71. Your contribution limit is based on your earned income of previous years. As long as you have unused contribution room, you can contribute, regardless of your employment.
Earned income includes money from a long list of sources, not just employment income from a full-time salaried position. For example, it also includes commission earnings (less employment expenses), net self-employment income, net rental income, alimony payments you receive and supplementary unemployment benefit plan payments.
It does not include investment earnings, pension proceeds, Old Age Security benefits, Canada/Quebec Pension Plan benefits, or payments from a Retirement Income Fund (RIF). In addition, earned income is reduced by alimony payments you make and losses incurred from a rental property or self-employment.
Even if you don't have earned income, you may still be able to contribute by taking advantage of any unused contribution room you've carried-forward.
2. Claim the deduction later
You don't have to deduct an RSP contribution in the year you make it. In fact, you can even claim the deduction after age 71.
If you expect your marginal tax rate to be higher in a future year than now, you may want to save the deduction until that time. For example, suppose you're planning to sell your business in three years. You expect your taxable income will be significantly higher than it is now. At a higher tax rate, your deduction will generate a greater tax benefit.
Note that you can use this strategy even if you're over age 71 or have already collapsed your RSP.
3. Contribute to the RSP of a younger spouse
You can contribute to a spousal RSP up to the end of the year in which your spouse turns 71—regardless of your own age. The only requirement is that you have unused RSP contribution room.
The tax deduction is yours to claim in whatever year you choose, while the money and its growth augment your spouse's plan. As long as your spouse does not make withdrawals from a spousal RSP within at least two calendar years after the calendar year it was contributed, it will be taxed in your spouse's hands.
If you're concerned that the money might be needed during this restricted period, you'll want to discuss this strategy with your Investors Group Consultant to see if it's still beneficial. Different restrictions apply if the spousal plan is rolled into a RIF or used to buy an annuity and special exceptions apply in the case of death and marital breakdown.
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This article, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
© Copyright 2007, Investors Group. All rights reserved. Do not reproduce without the express written consent of Investors Group.
