Registered Plans

• RRSPs
• RRIFs
• RESPs

Investment Basics

A Contribution To The Life You Want
The whole notion of retirement is changing. So is retirement planning. There is some debate as to how much you’ll need to retire comfortably. A standard rule-of-thumb suggests you’ll need 70 percent of your pre-retirement income to maintain a comparable standard of living. But there is no “standard” retirement these days. Your plans and dreams will differ from others. However, it is increasingly apparent that the vast majority of this income will need to come from personal savings such as RRSPs.

Registered Retirement Savings Plans (RRSPs)
RRSPs were introduced to allow Canadians to save for retirement in a tax-efficient manner. Currently, 18 per cent of earned income up to the annual contribution limit can be contributed to an RRSP and deducted from total income. Any unused contribution room is carried forward to be used in future years. The tax on RRSP contributions, and on the income earned within RRSPs, is deferred until funds are withdrawn from the plan. Since income during retirement is often much lower than during a person's working years, withdrawals from an RRSP are taxed at a lower rate than would otherwise apply.

A RRSP must be closed in the year an investor turns 69, and there are several options at this point:

• All the savings can be withdrawn (and then taxed as income).
• A life annuity or fixed-term annuity can be purchased, which guarantees a set monthly income but gives no control over investments, or
• The RRSP can be rolled over into another type of registered plan, the Registered Retirement Income Fund.

Spousal RRSPs
A Spousal RRSP is an RRSP registered in your spouse's name while you, as the contributing spouse, take a full tax deduction for all the contributions you make to the plan. You would establish a spousal RRSP for income splitting purposes if you believe that your spouse's income during retirement will be lower than your own. The assets in a spousal RRSP are considered the property of the plan holder (your spouse) and withdrawals will be taxed at his/her marginal rate. Spousal RRSPs are one of the few income splitting opportunities still available for Canadian taxpayers.

For more information, contact an Investment Advisor at a BMO Nesbitt Burns branch near you.

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