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Registerd Retirement Savings Plan

An RRSP is a generous gift for you from the government. In exchange for your willingness to save for your retirement in a registered plan, the government is willing to...

• Let you deduct your contribution from your taxable income.
• Let you grow your money in the plan tax-deferred.

For these two reasons, an RRSP is one of the most powerful and beneficial financial tools you’ll find anywhere. Which is why they are used by just about everyone and for many are the foundation of their retirement income.

Here’s how an RRSP works.

RRSP's

• Contribution limit = 18 percent of earned income in previous year, minus pension adjustments (up to an annual limit).

  Year	Maximum
  2006	$18,000
  2007	$19,000
  2008	$20,000
  2009	$21,000
  2010	$22,000
  2011 +	indexed to average wage growth

• Carry forward unused contribution room indefinitely.
• For clients over age 18, $2,000 over contribution allowed.
• Penalty for contribution (beyond $2,000 maximum) is one percent per month.

Spousal RRSP's

• Contributor claims tax deduction, but spouse who owns the plan makes all the investment decisions and is the legal owner.
• Main advantage: opportunity for income splitting at any age and not limited to 50 percent.
• Clients over age 71, who have available contribution room, can contribute to a spousal RRSP if their spouse is under 72.
• Generally, attribution will apply on withdrawals made from a spousal plan within two years of any contribution by the contributing spouse.

And here's the second gift the government gives you. All the investments in your RRSP plus all the earnings they generate are allowed to grow tax-deferred. Your investments enjoy compound growth in a tax shelter and that’s hard to beat.

Of course, you do have to pay tax on this money eventually, but when you do pay tax, it will likely be at a much lower rate than when you made your contributions. The theory is that you’ll be retired, your income will be much lower and you'll pay tax at a lower rate.