Wealth Management Report
RBC Dominion Securities Inc.
RRSP Quick Tips
QUICK TIP #1 CONTRIBUTE EARLY TO MAXIMIZE YOUR RRSP
You have until Wednesday, February 29, 2012, to make your 2011 Registered Retirement Savings Plan (RRSP) contribution. But remember to contribute early to avoid the last-minute rush. Contributing early can also boost your RRSPs growth over time, as your RRSP assets will have more time to benefit from taxdeferred compound growth.
Determining your available contribution room for 2011
Making your 2012 tax year contribution
You can start making RRSP contributions for the 2012 tax year as early as January 1, 2012 (March 1, 2013 is the deadline). The contribution limit is rising to $22,970 for 2012.
QUICK TIP #2 MAXIMIZE THE TAX ADVANTAGES
Tax-deductible contributions
1. Start with 18% of your 2010 earned income or $22,450 (whichever is less). 2. Subtract any Pension Adjustment appearing on your 2010 T4 tax slip. 3. Add any unused RRSP contribution room carried forward from previous years. You can also check your latest Notice of Assessment, Notice of Reassessment or RRSP Deduction Limit Statement (Form T1028), or log on to your Canada Revenue Agency account at: [Link]/myaccount.
You can claim your 2011 RRSP contribution as a deduction on your 2011 Income Tax Return to reduce your taxable income and potentially receive a tax refund. If you wish, you can claim it in a future year. It may make sense to wait to claim the deduction if you expect your taxable income to be higher in a future year, as you may receive greater tax savings. You can also claim deductions for contributions made in any previous year (from 1991 onwards) if you have not claimed them previously.
Tax-deferred growth
You can earn investment income within your RRSP on a taxdeferred basis, meaning you dont pay any tax on the income until it is eventually withdrawn (for example, when you convert your RRSP into a Registered Retirement Income Fund and start to withdraw income). This results in greater growth compared to earning investment income in a regular taxable account.
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Income-splitting with a spousal RRSP
Consider insurance to cover taxes
If you expect your spouse to have a significantly lower retirement income than you, consider directing some or all of your allowable RRSP contribution to a spousal RRSP You can still claim the tax . deduction yourself, reducing your taxes now. Your spouse will eventually receive income from the spousal RRSP (when it is withdrawn), which will help even out your retirement incomes and put you both in a similar tax bracket, potentially reducing your taxes during retirement. Since the introduction of the new pension income splitting measures where you can allocate a maximum of 50% of your qualifying income to your spouse, it still makes sense to contribute to a spousal RRSP if: n You are not able to achieve the optimum result from the income splitting measures; and
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If you have not named a beneficiary (or you cant), your RRSP will be collapsed and the balance paid to your estate or other named beneficiaries (such as your non-dependent adult children). The value of your RRSP will be included in your terminal income tax return. As the amount is taxed all at once at your marginal tax rate, many people take out an insurance policy to cover the taxes.
QUICK TIP #4 REMEMBER THE FORGOTTEN CONTRIBUTIONS
Your final contributions
QUICK TIP #3 MAKE THE MOST OF YOUR RRSP CHOICES
With a self-directed RRSP held at a full-service investment firm like RBC Dominion Securities, you can invest in a wide range of Canadian investments, from T-bills, GICs and bonds to equities, certain stock options and mutual funds. This gives you greater control over how your RRSP is managed.
Maximize global diversification to reduce risk
You can contribute to your own RRSP until December 31 of the year in which you turn 71, at which time your RRSP must be converted into a retirement income source such as an RRIF. If you have a younger spouse, you can continue contributing to their spousal RRSP until they turn 71. You can also make one last additional contribution to your RRSP in the year you turn 71 if you are still earning income (and therefore generating RRSP contribution room).
The bonus contribution
You and your spouse retire prior to age 65 and require income above and beyond whatever fixed sources are available.
You can make a cumulative excess contribution of $2,000 without penalty over the life of your RRSP. After that, there is a 1% per month penalty on any amount you contribute over your contribution room.
Avoid making withdrawals
Unless absolutely necessary, you should avoid making withdrawals from your RRSP as the entire amount you withdraw will be added to your taxable income. Two exceptions to this the Home Buyers Plan and Lifelong Learning Plan enable you to withdraw certain amounts that you must eventually repay.
Name a beneficiary
There are also a number of qualifying foreign investments including stocks and bonds. In addition, as of 2005, there is no longer a limit on the amount of foreign content you can hold in your RRSP (including U.S. securities). This helps you to diversify your RRSP globally, which is a proven risk-reduction strategy.
Reduce costs when trading U.S. securities
QUICK TIP #5 CONSOLIDATE YOUR RRSPS ON TAX-DEFERRED BASIS
You can transfer certain amounts above and beyond your allowable contribution limit to your RRSP on a tax-deferred basis:
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Amounts in any other RRSPs Registered pension plan amounts if you are changing employers (potentially subject to transfer limits) Some or all of a lump-sum retiring allowance received as part of a severance or retirement package
If you have named your spouse or a financially dependent child or grandchild as the beneficiary of your RRSP, your RRSP assets can be transferred to them on a taxdeferred basis when your estate is settled.
You can now contribute, buy, hold and settle in U.S. dollars in addition to Canadian dollars in your RBC Dominion Securities RRSP This gives . you greater control over when you convert between U.S. and Canadian currencies, so you can reduce the impact of unfavourable exchange rates and save on currency conversion costs.
> Please contact us for assistance with your RRSP.
This publication is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. Interest rates, market conditions, special offers, tax rulings and other investment factors are subject to change. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. * Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. Insurance products are offered through RBC Wealth Management Financial Services Inc., a subsidiary of RBC Dominion Securities Inc. When providing life insurance products in all provinces except Quebec, Investment Advisors are acting as Insurance Representatives of RBC Wealth Management Financial Services Inc. In Quebec, Investment Advisors are acting as Financial Security Advisors of RBC Wealth Management Financial Services Inc. RBC Wealth Management Financial Services Inc. is licensed as a financial services firm in the province of Quebec. Registered trademarks of Royal Bank of Canada. Used under licence. 2012 Royal Bank of Canada. All rights reserved. WMRRSPQT (01/2012)