Frequently Asked Questions about Retirement Savings
- What are the main advantages of a Registered Retirement Savings Plan?
- When is the best time to start contributing to a Registered Retirement Savings Plan?
- How much can I contribute to my Registered Retirement Savings Plan?
- How can I find out my Registered Retirement Savings Plan contribution limit?
- What types of investments can be in a Registered Retirement Savings Plan?
- What questions should I ask when choosing a Registered Retirement Savings Plan?
1) What are the main advantages of a Registered Retirement Savings Plan?
- Your Registered Retirement Savings Plan contributions are tax deductible. As a result, you pay less income tax for the years in which you contribute.
- Your savings grow tax-free. This way your savings grow more quickly.
- Taxes are deferred until you withdraw money from your Registered Retirement Savings Plan.
The pros and cons of Registered Retirement Savings Plans may depend on your particular income and tax circumstances. You may want to consult a financial adviser.
2) When is the best time to start contributing to a Registered Retirement Savings Plan?
The earlier you begin to make regularly scheduled contributions, the more time your savings will have to grow and compound.
3) How much can I contribute to my Registered Retirement Savings Plan?
The maximum amount you are allowed to contribute to your Registered Retirement Savings Plan is based on how much you earned in the previous year.
If you belong to an employer pension plan, or a deferred profit-sharing plan, this will reduce the amount you can contribute to your Registered Retirement Savings Plan.
The Canada Revenue Agency advises you of your contribution limit every year. If you don't contribute up to your Registered Retirement Savings Plan limit in one year, you can carry forward the unused amount to a future year.
4) How can I find out my Registered Retirement Savings Plan contribution limit?
Your contribution limit is reported on your notice of assessment. This is the statement that the Canada Revenue Agency sends to you after you file your tax return. Please visit the Canada Revenue Agency website for additional information.
5) What types of investments can be in a Registered Retirement Savings Plan?
Many types of investments can be in Registered Retirement Savings Plans, including savings accounts, Canada Savings Bonds, term deposits, guaranteed investment certificates, equities and mutual funds.
6) What questions should I ask when choosing a Registered Retirement Savings Plan?
- What is the difference between a Registered Retirement Savings Plan that is self-directed and one that is not?
- How much risk do I want to take with my savings?
- Should some or all of my investments be guaranteed?
- What risks are associated with different types of investments?
- What are the pros and cons given my income and tax circumstances?
In general, the higher the anticipated rate of return for your Registered Retirement Savings Plan, the higher the amount of risk.
