RRSP: Make room for your future
There’s no shortage of demands in your career.
It’s tough to make time for retirement planning when you’ve got so many competing priorities. But the sooner you start saving, the more peace of mind you’ll have about your future. A registered retirement savings plan (RRSP) from MD is an easy way to make long-term saving a part of your overall financial plan.
What is an RRSP?
An RRSP is a tax-deferred savings plan, created by the federal government, to give individuals a tax-efficient way to create retirement income. RRSPs are popular for three reasons:
1. TAX-DEFERRED GROWTH
The savings inside your RRSP grow with no tax to pay until later, when you withdraw. This allows your savings to grow much faster.
2. INCOME TAX SAVINGS
The money you contribute to your RRSP in any given year can result in a tax reduction. That money is yours to spend or invest however you choose.
3. INVESTMENT FLEXIBILITY
You can use any combination of investments inside an RRSP, including cash, fixed income and equities. This gives you control of the level of risk and reward in your plan.
Quick facts about RRSPs
Contributing to your RRSP
A few simple rules determine how much you can contribute to your RRSP. Your limit is based on your income and how much you have already contributed. If you’re an incorporated physician, you would need to pay yourself a salary to create contribution room.
- In most cases, you can contribute 18% of your previous year’s income — up to a dollar limit — plus any unused RRSP room carried over from previous years, less pension adjustments for the previous tax year.
- Your contribution limit is calculated for you by the Canada Revenue Agency (CRA) and can be found on your latest notice of assessment. You can also view your contribution room by creating a My Account on the Government of Canada’s website.
Converting your RRSP
You can continue to contribute to your RRSP until December 31 of the year you turn 71. Then, you have a few options:
1. You can cash out your RRSP. You’ll pay tax on the total amount at your tax rate when you’re 71.
2. You can transfer the money in your RRSP to a registered retirement income fund (RRIF) or an annuity. You then draw on either as retirement income.
3. A combination of 1. and 2.
A solid financial plan will take the guesswork out of which option is right for you at the time. Learn more about the MD approach to financial planning.
Enjoy other RRSP benefits on the road to retirement
RRSPs are primarily a way to save for retirement, but there are other benefits you can consider as your savings grow.
Buying your first home
As a first-time homebuyer, you have the option of using your RRSP funds toward your down payment. For many young physicians and their families, the Home Buyers’ Plan provides a leg up.
- Withdraw up to $35,000 from your RRSPs for a home purchase (up to $70,000 for a couple).
- You then have 15 years to repay the full amount to your RRSPs.
Heading back to school
The Lifelong Learning Plan allows you to withdraw up to $10,000 in a calendar year, to a lifetime maximum of $20,000, from your RRSPs to finance full-time training or education for you or your spouse or common-law partner. Note that this program cannot be used to pay for your children’s training or education or for the training or education of your spouse’s or common-law partner’s children.
Teaming up with your spouse
Spousal RRSPs offer a way for some couples to save taxes both now and in retirement by having the higher-earning spouse contribute to the lower-earning spouse’s RRSP. You should ask your MD Advisor* if this option is right for you. If you do want to contribute to a spousal RRSP, note that these contributions reduce the amount you are allowed to contribute to your own RRSP. You can confirm your contribution limit on your annual notice of assessment.
Make an RRSP part of your retirement plan
It’s easy to open an RRSP from MD Financial Management and set up regular contributions that take your mind off retirement while you enjoy today.