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Facts about Your RRSP for this Tax Season

It's easy to get distracted when saving for a far-off goal like retirement. But an RRSP offers many rewards, so it's critical to stay focused and make the best use of this unique opportunity each year. Earning a tax deduction is one good reason for contributing to an RRSP each year. But even more compelling is the tax-sheltered growth of your investments over what could be many years. It's this tax-free compounding of earnings that will create the nest egg you need to successfully live your dream. There are a lot of details to keep in mind when contributing to your RRSP. The rules governing RRSPs are set out in the federal Income Tax Act and administered by Canada Revenue Agency, and they're constantly subject to change. Outlined below are some of the key facts about RRSPs that you should be aware of for this tax season.

How Much You Can Contribute to your RRSP
The maximum you can contribute to your RRSP each is calculated as:

• The lower of 18% of your earned income from the previous year OR the maximum dollar limit for the taxation year, as shown below;
• LESS any company-sponsored pension plan contributions;
• PLUS any unused RRSP contribution room carried
• forward from past years.

"Earned income" includes salary or wages, alimony received, and rental income, among other income sources, but does not include items such as investment income. You can find the exact amount you can contribute to your RRSP for the current year on the Notice of Assessment you received from Canada Revenue Agency after your last tax return was processed.

"an RRSP offers so many rewards, so it's critical to stay focused and make the best use of this unique opportunity each year."

RRSP Contribution Maximums:

• for 2008, the dollar limit is $20,000
• for 2009, the dollar limit is $21,000
• for 2010, the dollar limit is $22,000

Company Pension Plan or Deferred Profit Sharing Plan
If you are a member of a company-sponsored registered pension plan or deferred profit sharing plan, the amount that you can contribute to your RRSP is reduced by the total value of the pension credits you earned for the year. This amount is referred to as a pension adjustment (PA) and is reported on the T4 slip (Statement of Remuneration Paid) you receive from your employer.

Carryforwards
If you can't make your maximum contribution one year, you can make up that portion of the contribution in later years by carrying it forward. You also have the option to make a contribution now, within your limits, but claim the related tax deduction in a future year. This may be favourable if you expect to be in a higher tax bracket in the future and therefore to earn a bigger tax deduction. You may even consider getting a loan to bring your RRSP contributions up to date.

"This year's deadline is March, 2 2009. However, we recommend that you make your RRSP contribution as soon as possible."


Annual Contribution Deadline
To be eligible for an RRSP deduction in a specific taxation year, you can make contributions anytime during the year, or up to 60 days into the following year. This year's deadline is March 2, 2009. However, we recommend that you make your RRSP contribution as soon as possible to maximize taxdeferred compounding in your plan. If possible, consider investing next year's contribution or starting a regular monthly plan to eliminate the last-minute crunch.

Over-Contributing to your Plan
If you make an RRSP contribution beyond your maximum allowable amount, it is considered an over-contribution. You are allowed to overcontribute up to $2,000 beyond your maximum allowable limit at any given time. Although you will not receive a tax deduction for the overcontribution, the money will eventually be taxed when withdrawn, just like other RRSP funds. However, the potential benefit is that the overcontribution can grow tax-sheltered within your RRSP and may be deducted in a future year as new contribution room is created.

Home Buyer's Plan
The Home Buyer's Plan allows you to borrow funds from your RRSP to purchase your first home. Here are some of the key facts:

• You and your spouse can each borrow up to $20,000.
• The funds must have been deposited to your RRSP at least 90 days before you withdrew them.
• At least one-fifteenth of the funds must be repaid each year, beginning two years after the funds were withdrawn.
• A signed agreement to buy or build a qualifyinghome is required.

Lifelong Learning Plan
The Lifelong Learning Plan allows you to pay for training or education with RRSP funds. Key facts include:

• You can withdraw up to $10,000 per calendar year to finance full-time training or post-secondary education.
• The student can be you or your spouse, but not your children.
• If the student meets disability requirements, then the training/education can be on a part-time basis.
• The total amount that can be withdrawn is $20,000 over a maximum of four consecutive years.
• Amounts that are withdrawn are not subject to taxes on withdrawal.
• At least one tenth of the amount borrowed must be repaid each year, over a maximum period of 10 years.

Separation or Divorce
During separation or divorce, either you or your spouse can transfer existing RRSPs to the other, without being subject to tax, provided that:

• You are living apart when property and assets are settled; and
• You have a written separation agreement or a court order.

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