RRSPs and RRIFs

Registered Retirement Savings Plan (RRSPs)

Contributing to an RRSP is still one of the most popular and tax-effective ways to save for your retirement. Your financial security and investment representative has the tools to help you build a portfolio to help you meet your retirement goals.

Contributing to an RRSP

To help Canadians save for retirement, the federal government makes tax allowances for those who contribute to registered plans. You can save in 2 ways:

• Contributing money to an RRSP can lower your income, so you pay less in taxes.
• Once invested, your contributions grow tax-deferred. That means you don’t pay tax on any earned income or capital gains until you take it out.

Each year, Canadians may contribute up to 18% of their income, up to a maximum of $20,000 (as of 2008). If you don’t contribute the maximum amount, you may accumulate the leftover room. Once contributed, the money becomes “registered.”

Withdrawing from an RRSP

Since you receive tax benefits from contributing to an RRSP, there are restrictions on withdrawals. To deregister or withdraw funds, you must pay tax, an administrative fee and any fees associated with the investments.

However, in 2 instances you may withdraw funds without penalties or taxes:

Home Buyers’ Plan – allows you to withdraw up to $20,000 from RRSPs to buy or build a qualifying home for yourself (as a first-time home buyer).

• You may still qualify as a first-time home buyer if you own a rental property or if you have not recently owned a home.
• You have to repay the money over a 15-year period or pay tax on it.

Lifelong Learning Plan – allows you to withdraw money from RRSPs to finance training or education for you or your spouse or common-law partner. You cannot use these RRSP funds to finance a child’s education.

• The maximum amount you can withdraw is $20,000.
• There is an annual limit of $10,000.
• You must repay the money over a specified period of several years or pay tax on it.

Registered Retirement Income Funds (RRIFs)

You’ve saved for your retirement and now you need an income. RRIFs allow you to draw an income while growing your savings tax deferred. You only pay tax on the money you take out.

Under the rules governing registered retirement savings plans (RRSPs), you must collapse these plans by the last day of the year in which you turn 71. This means you must convert your savings plan to a vehicle geared to provide income, such as an income plan or an annuity.

We offer many types of income options, depending on the type of funds you have accumulated.

• Registered retirement income funds (RRIFs) – a common option for investors converting their RRSP to an income plan.
• Life income funds (LIFs) and locked-in retirement income funds (LRIFs) – an income option for investors with locked-in registered retirement savings plans.
• Payout annuities – an option that provides guaranteed payments to meet your fixed-income needs.
• Prescribed retirement income funds (PRIFs) – for funds originating from locked-in RRSPs in Saskatchewan.

Registered retirement income funds (RRIFs) and payout annuities are the most common options.

When you convert your registered retirement savings plan (RRSP) to an income option, the capital keeps growing tax-deferred. You only pay taxes on the amount you receive from the income option.