Every year RHN gets asked questions about RRSP’s. We have put a few of the most important together here!
When do I need to make my contribution by?
March 1, 2021 is the deadline for contributing to an RRSP for the 2020 tax year.
Should I contribute to my RRSP?
It depends on your situation. If you have taxable income for the 2020 year, your contribution to your RRSP will reduce your taxable income and therefore reduce the taxes for the year. If you withdraw money from an RRSP, that money will be treated as income the year it is withdrawn, and you will need to pay tax on that income. Our recommendation to contribute or not depends on your needs and priorities. Please contact us and we will determine the best solution for your situation.
How much does my RRSP reduce my tax bill?
The RRSP saving effect depends on your income tax bracket for the year. The higher your income level, the more effective RRSP contributions are in terms of tax savings. Presently the top combined bracket in BC is income over $222,420, which is taxed at 53.5%. If you were to make an RRSP contribution with income greater than this level, you would reduce your tax bill by $0.535 for every dollar of contribution. Not bad!
How much RRSP should I contribute? What is my RRSP limit?
You can find your RRSP contribution room on your Notice of Assessment generated by CRA for your last tax year. It is based on earned income (this includes employment income, self-employed net income, CPP/QPP disability payment, and net rental income). The amount to contribute depends on the value of tax savings the contribution will generate, as well as how available the cash is to make the contribution. Remember that once you contribute money into an RRSP it is not generally accessible to you any longer.
At what age should a person start to contribute to RRSP’s?
You can make RRSP contribution one year after reporting earned income for the first time.
Why don’t I get all the tax I had deducted from my T4 when I contributed to an RRSP?
Keep in mind the RRSP contribution only reduces your taxable income by the amount you contribute. So if you had employment earnings of $50,000 and you made a $10,000 RRSP contribution, you are still left with $40,000 of income subject to tax. Since tax withholdings were made on the employment income at source, you would receive a refund equal to the difference in tax between $50,000 of taxable income and $40,000 when you file your tax return.
Interested in learning how RHN can help you maximize your returns? Give us a call today!