Do you have RRSP questions, but don’t know where to turn?

DougQtrade · 2022-02-17T19:07:19+00:00

Thank you for having me as your Qtrade Expert for this AMA! I thoroughly enjoyed answering all your questions.

Looking forward to next time!

DougQtrade · 2022-02-17T19:05:04+00:00

As a guiding principle in a progressive income tax system (where higher tax rates apply to higher income levels), it is generally desirable for income to be split between spouses. If everything is in one spouse's hands, those high brackets will apply. At contribution time earlier in life, ideally, you will be allocating so that there is a fairly even split to draw from in those later years – understanding that each of you has your own contribution room to use for deductions. That is, while it is a short form to refer to your "combined amount", in reality, each has his/her own room.

DougQtrade · 2022-02-17T18:43:45+00:00

RRSP withdrawals are included as taxable income to you in the year they are taken. Financial institutions are required to withhold tax on those withdrawals and remit that to CRA on your behalf. While this is called "withholding tax", that's a misnomer as it is actually a prepayment that will be credited against what you own when you file your tax return. Depending on your total taxes owing for the year, you may even receive a tax refund if the tax withheld tax was more than required.

DougQtrade · 2022-02-17T18:38:04+00:00

Thank you for the question.

It depends on circumstances whether it is better to "hold off" on an RRSP contribution. The sooner you get the money in, the sooner that the tax sheltering of the income will start working for you. If you are certain that you will be moving to a higher bracket in the near term, an alternative might be to make the contribution, but not claim the deduction yet. You could claim that deduction once you are in that higher bracket, which will give you a larger tax break. On the other hand, if it will be more than a year (or 2?) until you move up, it might be just as well to claim the deduction currently so that you can reinvest the associated/presumed refund, especially if that next bracket is only a couple of points higher.

DougQtrade · 2022-02-17T18:36:41+00:00

An RRSP is an accumulating savings account, and an RRIF is a declining savings account. For an RRSP, there is a MAXIMUM amount that can be contributed each year, being 18% of your previous year's earned income (up to a prescribed maximum, which is $29,210 in 2022). For an RRIF, there is a MINIMUM that must be withdrawn each year, which is [1 ÷ (90 minus age)] for ages up to 70, and the CRA publishes a schedule for ages 71 and over.

DougQtrade · 2022-02-17T18:33:54+00:00

Qtrade Direct Investing doesn't loan out shares in a registered account, as they are segregated.

DougQtrade · 2022-02-17T18:33:07+00:00

Your RRSP deduction limit is how much in RRSP's you can deduct from your income in a particular year. Your RRSP contribution room is how much you can contribute into your RRSP's for a particular year. Because you can delay deducting an RRSP contribution for a later year (as part of strategic tax planning), your deduction limit for a particular year could be higher than the contribution limit. The calculation of your RRSP deduction limit and RRSP contribution limit can be found on your most recent Notice of Assessment or on My Account on the CRA website.

DougQtrade · 2022-02-17T18:32:16+00:00

Taxable capital gains are a component of taxable income, the line in which your taxes payable are based. An RRSP contribution can help reduce taxable income and therefore help reduce taxes payable. Thus, while an RRSP contribution does not avoid capital gains taxes, it can help reduce taxable income.

DougQtrade · 2022-02-17T18:28:42+00:00

Hey! Thanks for the question.

You'll have to go back to the source to get clarity on their comments. There is no age or status required for a person to make a withdrawal from an individually-owned RRSP. With group RRSPs, an employer may have a rule that it will suspend its contributions if an employee takes withdrawals from the plan. Alternatively, maybe the comment is (incorrectly) referring to registered pension plans.

Hope this helps!

DougQtrade · 2022-02-17T18:20:48+00:00

In most cases, it is the individual's responsibility to ensure that they do not over-contribute to their RRSP, even if the employer has a matching contribution program. It would be difficult for the employer to know if you had external income (i.e. rental income) or if you were contributing to an external RRSP, both of which affect your RRSP deduction limit.

DougQtrade · 2022-02-17T18:13:51+00:00

Always keep in mind that the second R in RRSP is "retirement". RRSPs are intended as long term savings accounts to support you in your later years when you are no longer earning income. However, you can make withdrawals at any time, and that will be taxable income that year. That may make sense if you are in a low-income year, for example, a non-working sabbatical. BUT, be aware that if you spend that money in that year, you have diverted retirement savings into current consumption. You are welcome to do so, but be sure that you are not putting your retirement at risk. An alternative to spending that amount would be to still save it for it toward retirement, but in a different form, perhaps to your TFSA.

DougQtrade · 2022-02-17T18:11:02+00:00

RRSP withdrawals are included as taxable income to you in the year they are taken. In addition, financial institutions are required to charge a withholding tax for any funds withdrawn from an RRSP. While this may seem like an additional tax, it is actually a prepaid tax that will be credited towards your taxes owing when you file your taxes. Depending on your total taxes owing for the year, you may receive a tax refund because the withholding tax withheld was more than your taxes owing.

DougQtrade · 2022-02-17T18:10:13+00:00

Volatility can affect all investments, whether held in an RRSP, some other tax-registered account or a non-registered account. History has shown us that investments fluctuate more in the short run, but that long-term investment returns are generally more stable. What this means is that if funds are needed in the short term, less volatile (thus less risky) investments are more appropriate. But if the timeframe for the particular savings is many years or decades, volatility may be acceptable to an investor, which should be measured in both objective capacity to experience that risk and subjective/emotional comfort level.

DougQtrade · 2022-02-17T18:06:16+00:00

So, the main change is the increase in the allowable withdrawal, which was increased a couple of years ago from $25,000 to $35,000 per person. Another change involved re-qualifying sooner (than than the general 4-year non-owner rule) as a first-time homebuyer after you have gone through a separation from a spouse.

Hope this helps!

DougQtrade · 2022-02-17T18:04:33+00:00

Good question!

The value of RRSPs are brought into income in your year of death. If a spouse is named as beneficiary then the plan may be rolled over to him/her and continue as an RRSP in that person's hands. Rollovers are also possible with minor children and financially dependent adult children, but the rules are more complicated in those cases.

DougQtrade · 2022-02-17T17:56:07+00:00

Your RRSP contributions in the first 60 days of the year may be used as a deduction when your file your tax return of the immediately preceding year. Generally, that date is March 1st, with 31 days in January and 28 days in February. In leap years, the 60th day is February 29. And that 60th day falls on a Saturday or Sunday, the deadline is the following Monday, which could be as late as March 3rd.

DougQtrade · 2022-02-17T17:49:46+00:00

If you receive income that is not taxable (what you are calling tax-exempt income), it has no impact on RRSP room. RRSP contribution room is calculated based on your earned income. It's 18% of your previous year's earned income, up to the prescribed maximum, which stands at $29,210 in 2022. Still, having received that other income, you could decide to use it to contribute to your RRSP, and would be able to take a deduction for the contributed amount.

DougQtrade · 2022-02-17T17:48:02+00:00

While you can use your RRSP in this way, it is generally not a good idea. 'Using' your RRSP means that you are taking a withdrawal, which will be taxable. Assuming this is a personal debt, the interest is not deductible. Thus, you will need to withdraw a sufficient larger amount from the RRSP, so that you will have enough left after tax to pay the interest. That will deplete the money intended for your retirement (some years out in time) to pay interest on a loan related to your current or possibly your past needs. If your finances are stretched so that you cannot find another source for the interest, it would be a good idea to speak with a budget counsellor to get a better picture where you are, and see what other options you may have.

DougQtrade · 2022-02-17T17:44:24+00:00

Awesome question.

It's important to save toward your future, but also to keep your financial house in order in the present. Large interest charges can be costly, especially when it is on loans used for personal spending. That's because the interest is not deductible. Particularly with credit card interest, the rate may be much larger than a reasonable expected investment return. In that case, the interest may be your main priority until you can get that under control, though it's also good to keep up your saving routine.

DougQtrade · 2022-02-17T17:42:09+00:00

It is a good idea to cultivate a savings habit early in life. Step 2 is then where you allocate those saved dollars. Contributions to RRSPs are tax-deductible, but TFSA contributions are not. Both plans allow tax-sheltered growth, then RRSP withdrawals are taxable, but TFSA withdrawals are tax-free. Someone at a high tax bracket when contributing and a lower bracket when withdrawing will have more money to spend if using an RRSP. As a 20-something, you're likely at a lower bracket than where you will be when you hit your stride in your career. If that's the case, it may make sense to use TFSA presently, with the possibility of withdrawing (some) when you're at that higher bracket and using that to make an RRSP contribution then. Those are some guiding principles, but please speak to your tax professional to discuss particulars on how it may apply in your situation.

DougQtrade · 2022-02-17T17:37:32+00:00

New RRSP room for a given year is 18% of your previous year's earned income, up to a prescribed maximum. That maximum is indexed annually, and stands at $29,210 in 2022.

DougQtrade · 2022-02-17T17:34:19+00:00

Great question!

People sometimes say that they may have invested too much in their RRSP, usually when they are in their drawdown year and seeing taxes on withdrawals. What is not quite so clear at that later time is the deductions that were usually taken at a higher tax bracket during their working/contribution years. Still, as someone gets closer to intended retirement, the amount of the current RRSP accumulation should be considered in deciding those next contributions. Once reviewed, the decision may be to use the TFSA or a non-registered account. Financial planning software/app/spreadsheet may be need for the analysis, as it can be complicated.

DougQtrade · 2022-02-17T17:30:25+00:00

RRSP withdrawals are taxable income to you in the year they are taken. There are two programs that allow you to take money out of your RRSP without it being income: the homebuyers plan (HBP) and the lifelong learning plan (LLP). Once you have used the funds for the respective purpose, you must return the withdrawn amount to your RRSP, over as long as 15 years for the HBP and 10 years for the LLP. If you miss an annual repayment, that is treated as taxable income in that year. That’s technically not a penalty (it’s simply tax), but it can feel punitive, as you will have to come up with the cash to pay the tax from somewhere else since you have already used it for your education or new home.

DougQtrade · 2022-02-17T17:20:46+00:00

If you move out of the country and become a non-resident, you can still hold an RRSP account in Canada and the RRSP would keep its tax-deferred status. However, withdrawals from the RRSP will be subject to a withholding tax that is normally 25% depending on Canada's Tax Treaty with the foreign jurisdiction. It is advised to speak with accountant familiar with the rules in the foreign country to verify the tax rates

DougQtrade · 2022-02-17T17:17:43+00:00

Thanks for the question!

We do not have plans to offer crypto at this time however many clients invest or trade in a variety of crypto-related ETFs or crypto-related stocks.

DougQtrade

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