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We recently shared the only item on the RBC InvestEase bucket list — getting more Canadians off the sidelines and invested for their future!

Part 2 of our series explores RRSPs. Check out our first piece on TFSAs in case you missed it.

We like to think of RRSPs and TFSAs as buckets you can put your money into. Technically, each is a type of account you can move money into and use to hold investments (such as ETFs), but if you like analogies, we think the bucket analogy is useful.

We’ll explain some of the important features of an RRSP in this article.

RRSP

  • What does the acronym RRSP mean? Registered Retirement Savings Plan
  • Who can open an RRSP with RBC InvestEase? There is no minimum age to open an RRSP, but when you turn 71 you have to convert your RRSP to a Registered Retirement Income Fund (RRIF) or other income option. In order to contribute to an RRSP, you must have earned an income in prior years. We’ll cover how much you can contribute shortly.
  • What’s the benefit of an RRSP? All of the gains and income earned in an RRSP are not taxed, just like a TFSA. But, there are a few other important tax considerations to be aware of specific to RRSPs:
    • Amounts you contribute to your RRSP can reduce your income tax bill.
    • If you withdraw money from your RRSP, it gets taxed as income in that year, unless you are participating in one of the following programs:
      • Home Buyers’ Plan: This plan lets you withdraw up to $35,000 in a calendar year from your RRSP to buy or build a home. Repayment begins in the second year after the year of the withdrawal under the plan and you have 15 years to repay the funds.
      • Lifelong Learning Plan. This plan lets you withdraw a total of $20,000 ($10,000 maximum in a calendar year) from your RRSP to pay for full-time training or education. Withdrawn funds have to be repaid to your RRSP. Typically, you have to repay 10% of the withdrawn amount each year until the full amount is repaid.
  • How much money can I put into an RRSP?
    • Official way #1: Your RRSP contribution limit is listed on your Notice of Assessment from the Canada Revenue Agency (CRA), so look there first.
    • Official way #2. If you don’t have your Notice of Assessment handy, visit the CRA website here. Once you log in, scroll to the ‘RRSP contribution room’ link. This is the amount you had available as of January 1st, so subtract any RRSP contributions you’ve already made this calendar year.
    • Unofficial estimate (if you enjoy the pain of calculations and accept all the risk of getting it wrong). Start with knowing for which year you are completing your taxes. If you’re reading this in 2019, you are likely completing taxes for 2018. Your RRSP limit is based on 1) 18% of your earned income in 2017 (up to the maximum contribution limit for the year); 2) add any carry-forward room as noted on your Notice of Assessment from 2017; 3) make adjustments for pension contributions; 4) adjust for any participation in a pension program; 5) take into account any participation in the Home Buyers’ Plan and/or Lifelong Learning Plan.

      And then, when you’ve done all that, go back up to official way #2 to double-check you have the correct number!
    • What else should you know? RRSPs are an excellent way to save for your retirement. They have some important tax considerations you should think about. But, in most cases, if you have already maxed out the contribution room in your TFSA and are saving for your retirement, you should certainly contribute to an RRSP instead of a regular (non-registered) investment account.

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RBC InvestEase Inc. provides online discretionary investment management services. Other products and services may be offered by one or more separate corporate entities that are affiliated to RBC InvestEase Inc., including without limitation: Royal Bank of Canada, RBC Direct Investing Inc., RBC Dominion Securities Inc., RBC Global Asset Management Inc., Royal Trust Corporation of Canada and The Royal Trust Company. RBC InvestEase Inc. is a wholly-owned subsidiary of Royal Bank of Canada and uses the business name RBC InvestEase. In addition, the RBC iShares ETFs in which RBC InvestEase Inc. clients invest are managed by BlackRock Asset Management Canada Limited. RBC Global Asset Management Inc. and BlackRock Asset Management Canada Limited have entered into a strategic alliance to bring together their respective ETF products under the RBC iShares ETF brand, and to offer a unified distribution support and service model for RBC iShares ETFs.

The services provided by RBC InvestEase are only available in Canada.