Wednesday, March 24, 2021

Do You Even RRSP?

Another year, another tax season with an opportunity to earn from tax breaks. If you are looking to save up for your retirement then you really should consider investing in RRSP as the tax breaks benefits can help you in your saving.

What are tax breaks from RRSP?
If you earned 50, 000 in the year and invested 20,000 in your RRSP then, as far as the government is concerned, you only made 30, 000 in the year (50,000 - 20,000) and that's the amount you'll be taxed on instead of the full 50,000.

Where's the catch?
The catch is that you have to pay taxes once you start taking your RRSP as it is considered a source of income but logically the taxes you pay on it will be lower since your earnings, once you retired, will not be as high as when you were working.

What are good RRSP strategies?
  • Start early.
  • Only invest money you can afford to loose.
  • Participate in your employer's RRSP plan as they often offer 2-4% match (free money).
  • Re-invest your tax return in your RRSP (instead of spending it).
  • If possible, maximize RRSP investments every year.
  • Don't take out your RRSP until you retire otherwise you'll need to pay taxes on it.
What are TFSA?
Have you maxed out your RRSP? A Tax Free Saving Account (TFSA) is another good way to save your money. As the name implies, the account is "Tax Free". While there are no tax return benefits to this account, you are also not require to pay taxes on the money you make (up to a point) - which makes it an ideal investment account.
Some prefer a TSFA over RRSP as they get to put/take money away without any tax implications (up to a point). A TSFA is better for short term savings while RRSP is better for longer term/retirement savings.

Start saving now!

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